Amid slow deposit growth, banks in India are increasingly turning to special fixed deposit (FD) schemes to attract funds. RBL Bank and Bandhan Bank launched new FD schemes this week, offering interest rates as high as 8.8% on tenures of 500 days, and one year and nine months, respectively. These schemes follow similar initiatives by State Bank of India, Bank of Baroda, Bank of India, and Bank of Maharashtra, which introduced FDs last month with rates up to 7.80%.
The surge in special FD offerings comes as banks face the challenge of raising deposits while managing costs, with many lenders opting not to increase interest rates across all tenures. The new FD rates, which approach the 9% mark, highlight a growing trend among smaller and mid-sized banks to offer higher rates than their larger counterparts due to their more limited branch networks and workforces. For instance, RBL Bank is providing 8.85% interest on its 500-day deposit to super-senior citizens (those aged 80 and above), while public sector banks are offering between 7.25% and 7.80%.
Federal Bank has launched a scheme with interest rates of 7.35% for a 400-day tenor, 7.40% for a 777-day tenor, and options for callable deposits with similar tenors. Senior citizens are eligible for an additional 0.50% interest on these rates. Similarly, RBL Bank’s ‘Vijay Deposit Scheme’ offers 8.10% interest on a 500-day tenor, with an increased rate of 8.60% for senior citizens.
Public sector lenders are also participating in the trend. Bank of Maharashtra is offering 7.25% interest on a 777-day FD, while Tamilnad Mercantile Bank provides 7.50% interest on a 400-day tenor, with senior citizens receiving 8%.Private banks lead
Private sector banks have been particularly aggressive in expanding their share of term deposits, leveraging competitive rates and marketing strategies. As of March 2024, the Reserve Bank of India (RBI) reported that private banks’ share of term deposits rose to 33%, up from 30% the previous year, while public sector banks’ share decreased from 61% to 58.5% over the same period. The total term deposits of private banks grew by 30%, reaching Rs 38 lakh crore, while those of public sector banks rose by 12.7% to Rs 67.7 lakh crore.
This shift comes as deposit growth lags behind credit expansion, posing challenges for banks. As of June 28, 2024, bank credit had grown by 17.3% to Rs 168.8 lakh crore, while deposits had increased by 11.1% to Rs 212.9 lakh crore.
