Want to book an FD? Hold on till Dussehra

Want to book an FD? Hold on till Dussehra

Banks start fresh round of deposit-rate hikes; more expected ahead

For those looking to put money in bank fixed deposits (FDs), it might be a good idea to hold on till Dussehra

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This is because banks are expected to raise their deposit rates further in a bid to boost deposit growth, which is currently trailing the growth in advances.

State Bank of India (SBI), the largest lender in the country, on Thursday hiked deposit rates in select short and medium maturity slabs by 25-75 basis points (a basis point is one-hundredth of a percentage point) effective Friday.

Punjab National Bank, too, announced an increase in its deposit rates in selected buckets by 25-50 basis points effective Friday, while IDBI Bank raised deposit rates across maturities by 15-50 basis points.

Other banks are likely to follow suit, and soon. Overall, bankers see an immediate rise of around 50 basis points this festival season, and as much as 100 basis points going forward.

"If one bank does it, then obviously no bank will be left behind. If the increase is by 50 basis points, then others will also follow it else you will be left out of the market," said P Sitaram, chief financial officer, IDBI Bank.

"Banks will be aggressive on retail deposit growth. The festival season is round the corner and that is the time when there is a drive for deposit growth. At that time, banks will be offering some attractive rates and trying to attract retail investors. The hike in deposit rates may be in the range of 25-50 basis points," said S Govindan, general manager (personal banking & operations), Union Bank.

In the annual policy statement for 2010-11, the Reserve Bank of India had projected a growth of 18% in banks' deposits. In order to meet this growth target, most banks have already raised their fixed deposit rates across various maturities by up to 150 basis points.

Yet, some see a veritable deposit-rate war among banks, going forward.

"Banks are raising deposit rates and I hope that it does not turn into a deposit rate war. If it does, then the base rate has to change. I think deposit rate remaining lower is beneficial. If one or two banks raise deposit rates to mobilise more deposits, then ultimately somebody will lose," said Jayesh Mehta, managing director and country treasurer (global markets group), Bank of America.

Clearly, banks which are not in a position to match the trend of northward movement in deposit rates will lose out to those who can.

This war may intensify in the next few quarters. "This is because towards the end of the fiscal banks will have to meet their balance sheet growth target," said Suresh Ganapathy, head of financial research team, Macquarie Securities. Ganapathy doesn't rule out the possibility of a further hike this fiscal.