Mumbai: All may not be bad for bank deposit holders, including senior citizens, if the recent trend of banks increasing interest rates on deposits, especially long-term, is any indication.
The interest rate, both on lending and deposits, had come to the fore following the Reserve Bank of India's decision to up its reverse repo and repo rates by 25 basis points each, once in June and then again during the first quarter review of its credit policy on July 25.
The spate of PLR hikes that followed, the Finance Ministry's missive to public sector banks on the issue and the relative calm thereafter had all catapulted the interest rates issue to the spotlight.
The point of interest in this trend is that deposits started tasting sweet even in the pre-July 25 days with several high-yielding long-term schemes launched by banks.
This indicates that July 25 may not have necessarily triggered off this trend but the RBI's decision to hike rates in the second week of June could have made banks think in this direction.
The upward deposit interest rate revision by India's premier bank, State Bank of India (SBI), preceded by a few other banks, both in the public and private sector, seem to indicate a trend in the Indian banking industry.
SBI on Saturday increased interest rates on deposits of various tenures by 25-to-50 bps, the second such upward revision since May 1. The new rates will come into effect from Monday.
The move has been prompted by the intention to bring its interest rates on deposits in line with the rates of its peers, a top SBI official said.
"SBI has always been customer-centric and this is just one more step toward rewarding our loyal customers," the official said.
He denied that the move had any linkage with the recent 25 bps PLR hike effected by the bank. "The two things are different. If there was any linkage, one would have done both simultaneously," he said, adding that "our move today is to make customers happy and not a sweetener to compensate for the PLR hike."
The trend of banks increasing their interest rates on deposits becomes clearly visible when one factors in banks such as Bank of Baroda (BoB) which increased its rate by 25 bps for medium-term deposits. For deposits of a tenure of over 8 years to 10 years, BoB increased its rate by 100 bps from 7 to 8 per cent per annum.
Bank of Rajasthan and Centurion Bank of Punjab (CBoP), both private sector majors, too had increased their rates with BoR increasing its rate to eight per cent for a tenure of one year. CBoP, too, had increased its rates for specific tenures.
IndusInd Bank too followed the trend by increasing its rates from 6.75 per cent to 8 per cent for a tenure of 270 days to less than one year.
In fact, the private bank on Saturday launched a tax-saving term deposit with a maturity of not less than five years and giving a return of 8.5 per cent per annum which goes up to 9 per cent for senior citizens.
Bank of Maharashtra's (BoM) chief, M D Mallya, also said that his bank had hiked rates in specific tenures 'to meet deposit accretion requirements'. For tenures of between 181 days and two years, the bank has upped its interest rates by 25 bps.
For tenures of between 6-10 years, BoM is offering an eight per cent interest and nine per cent to senior citizens.
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