Keeping money in fixed deposits now unattractive an option
Keeping your money locked in bank fixed deposits has become less
attractive as several banks, including State Bank of India (SBI) and
ICICI Bank, have reduced interest rates by 50-100 basis points.
Keeping your money locked in bank fixed deposits has become less attractive as several banks, including State Bank of India (SBI) and ICICI Bank, have reduced interest rates by 50-100 basis points (bps).
With the Reserve Bank of India (RBI) reducing the cash reserve ratio (the proportion of money that banks have to keep with the RBI), SBI has also slashed its base rate (the benchmark lending rate) by 25 bps to 9.75 per cent. With increased liquidity, other banks are likely to follow suit. One bps is equal to one-hundredth of a percentage point.
SBI fixed deposits below Rs 1 crore with tenures of 1-10 years will now earn 8.5 per cent a year from 9 per cent earlier. Term deposits with smaller maturities will earn 6.5 per cent on deposit amounts below Rs 15 lakh; deposits of Rs 15 lakh and more but less than Rs 1 crore will get 7.5 per cent interest.
Following SBI, ICICI Bank, HDFC Bank and Axis Bank have also reduced the rates on term deposits by up to 50 bps.
ICICI Bank has cut deposit rates in the 90 days to five-year bracket by 50 bps. HDFC Bank has reduced deposit rates in the six months, 17 days to five-year bracket by 50 bps. One-year term deposits with HDFC will earn an interest of 7.75 per cent for investments less than Rs 1 crore. Axis Bank has reduced its one-year deposit rate to 8.75 per cent.
"Small banks, which are still offering 9.25-9.5 per cent on term deposits, may follow and reduce their rates in the coming weeks," says Vaibhav Agrawal, vice president, research - banking, Angel Broking.
The interest rate cuts have been prompted by high liquidity with banks, mainly on account of low credit offtake due to weakening economic growth.
"Incremental credit growth for banks continues to remain weak. Deposit mobilisation has also been on a declining trend," says Agrawal.
With the Reserve Bank of India (RBI) reducing the cash reserve ratio (the proportion of money that banks have to keep with the RBI), SBI has also slashed its base rate (the benchmark lending rate) by 25 bps to 9.75 per cent. With increased liquidity, other banks are likely to follow suit. One bps is equal to one-hundredth of a percentage point.
SBI fixed deposits below Rs 1 crore with tenures of 1-10 years will now earn 8.5 per cent a year from 9 per cent earlier. Term deposits with smaller maturities will earn 6.5 per cent on deposit amounts below Rs 15 lakh; deposits of Rs 15 lakh and more but less than Rs 1 crore will get 7.5 per cent interest.
Following SBI, ICICI Bank, HDFC Bank and Axis Bank have also reduced the rates on term deposits by up to 50 bps.
ICICI Bank has cut deposit rates in the 90 days to five-year bracket by 50 bps. HDFC Bank has reduced deposit rates in the six months, 17 days to five-year bracket by 50 bps. One-year term deposits with HDFC will earn an interest of 7.75 per cent for investments less than Rs 1 crore. Axis Bank has reduced its one-year deposit rate to 8.75 per cent.
"Small banks, which are still offering 9.25-9.5 per cent on term deposits, may follow and reduce their rates in the coming weeks," says Vaibhav Agrawal, vice president, research - banking, Angel Broking.
The interest rate cuts have been prompted by high liquidity with banks, mainly on account of low credit offtake due to weakening economic growth.
"Incremental credit growth for banks continues to remain weak. Deposit mobilisation has also been on a declining trend," says Agrawal.
