Indian banks are stepping up their efforts to attract retail deposits by offering special plans that provide savers with interest rates at least 25-30 basis points higher than current rates for comparable tenures.
Several major banks, including State Bank of India (SBI), Bank of Baroda, Indian Overseas Bank, Union Bank of India, and Bank of Maharashtra, have introduced deposit plans offering interest rates between 7.25% and 7.30% for investment periods ranging from 399 to 444 days. These banks are also offering an additional 50 basis points for senior citizens. This initiative to increase deposit rates follows a recent interaction between the Reserve Bank of India (RBI) and banks.
SBI’s Amrit Vrishti scheme offers 7.25% for 444-day deposits, while Bank of Baroda’s Monsoon Dhamaka plan provides 7.25% for 399 days. Indian Overseas Bank offers 7.30% for 444 days, and Bank of Maharashtra’s plans include 6.90% for 200 days and 7.10% for 400 days.
The RBI had instructed bank CEOs to narrow the gap between deposit and credit growth. Recent data from the RBI showed that, as of June 28, bank credit rose by 14% year-on-year, while deposits increased by 11%.
This move signals that policy interest rates are likely to remain elevated for the foreseeable future.
Shorter tenures
Banks are offering these peak rates on shorter tenures, anticipating that the interest rate cycle, which was earlier expected to reverse later this year, might eventually turn as inflation remains within the central bank’s legally mandated limits. Offering higher rates for shorter durations allows banks to avoid being locked into high-cost liabilities when the interest rate cycle eventually turns.
Also, banks are finding it challenging to raise retail deposits and have launched limited-period schemes to attract more funds.
The special rate schemes are designed with the assumption that if credit growth continues at its current pace of 14-16%, banks will need to offer more attractive interest rates to mobilise deposits.
