The competitive intensity among Banks for mobilising deposits may intensify further, with State Bank of India (SBI) upping retail and bulk term deposit rates in the wake of deposit growth lagging credit growth and banking system liquidity continuing to face overall liquidity deficit.
SBI has upped interest rates on retail domestic term deposits (Below ₹2 crore) by 25-75 basis points on deposits of less than one-year tenor. India’s largest bank also increased interest rates on domestic bulk term deposits (₹2 crore and above) by 10-50 basis points on five out of eight maturity buckets. The new deposit rates are effective from May 15, 2024.
The highest interest rate the Bank is currently offering is 7 per cent on a retail term deposit of 2 years to less than 3 years duration. In the case of bulk term deposits, the highest interest that it is offering is 7 per cent on 1 year to less than 3 years maturity bucket.
The cumulative 250 basis points repo rate hike in the May 2022-February 2023 period has resulted in transmission of 241 basis points in the Weighted Average Domestic Term Deposit Rate (WADTDR) on fresh deposits and 183 basis points on outstanding deposits between May 2022 and February 2024, per RBI’s latest monthly bulletin. One basis point equals one-hundredth of a percentage point.
That credit growth is outpacing deposit growth is underscored by the fact that as on May 3, 2024, all scheduled banks’ recorded a credit growth of 19.29 per cent year-on-year (Y-O-Y) against a deposit growth of 13.34 per cent Y-O-Y. Hence, to narrow the gap between credit and deposit growth, banks are upping deposit rates.
CARE Ratings, in a recent report, noted that as the credit-to-deposit ratio remains elevated, growth in the liability franchise would play a significant role in sustaining loan growth. The competition for deposits is likely to intensify even further, it added.
Madan Sabnavis, Chief Economist, Bank of Baroda said: “Deposit rate increases are going to be bank specific, depending on each Bank’s asset-liability situation. Overall, there is already a liquidity deficit in the banking system. This has been there for quiet some time. ₹1.50 lakh crore deficit is what we are seeing on a daily basis.
“However, RBI is infusing liquidity via VRR (variable rate repo) auction. But there is also lot of money being parked in SDF (standing deposit facility).”
He observed that normally, a bank will increase deposit rates in specific buckets because it is creating assets of similar maturity. So, increase in retail and bulk deposit rates is a bank specific decision.
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