Deposit Interest Rates Rise as RBI Hikes Repo Rate, Signaling a Shift in Bank Deposit Dynamics

Strategic Insights -

Bank deposit returns have seen a surge over the past six years, as interest rates on deposits rise due to the Reserve Bank of India's (RBI) Repo rate hike. The increase has led to a significant shift in bank deposit dynamics, with customers increasingly opting for fixed deposits (FDs) with a tenure of 'one year to less than three years' where interest rates are highest. This trend is evident in the rising share of term deposits, which have surpassed savings deposits in total deposits, with a 73.2% share in 2022-23 compared to 44.4% in 2021-22.

Key Takeaways:

  • The share of term deposits under the interest rate bucket of 6% to less than 8% recorded a significant surge in their share to total deposits, moving to 57.6% from 12.6% in the previous year.
  • The share of term deposits with an original maturity period of 'one year to less than three years' soared to 64.2% as at end-March 2023 from 50.4% a year ago.
  • Private sector banks have been continuously eating into the market share of public sector banks in the last few years, attracting 45.6% of incremental deposits and 53.7% of households' deposits during 2022-23.
  • Women's contribution to total deposits increased to 20.5% to Rs 36.99 lakh crore in March 2023, with Maharashtra and Uttar Pradesh leading among states with the maximum deposits from women.
  • Individuals accounted for 52.8% share in total deposits within the household sector, with more than half of households' deposits coming from five states: Maharashtra, Uttar Pradesh, NCT of Delhi, Karnataka, and West Bengal.
  • The structure of bank deposits is influenced by RBI's rate changes, with banks focusing on raising deposit rates on those buckets where they anticipate mismatch in meeting liabilities at the time of maturity.

Statistics:

  • Total deposits with commercial banks grew by 10.2% during 2022-23, reaching Rs 183.74 lakh crore as of May 19, 2023.
  • Term deposits grew by 11.4% while demand (savings) deposits rose by 6.8% in the reporting fortnight as against 8.3% and 17.2% respectively reported in the fortnight ended May 20, 2022.
  • The RBI had hiked Repo rate by 250 basis points to 6.50% since March 2022.
  • Deposits of commercial banks were at Rs 18 lakh crore on a year-on-year basis.
  • The maximum year-on-year increase in portfolio outstanding of women borrowers for gold loans was 64%, two-wheeler 42%, and personal loan 35% as of December 2022.

Sources:

  • Reserve Bank of India (RBI)
  • CRIF High Mark
  • IE Online Media Services Pvt. Ltd.