Three banks raise deposit interest rates in a bid to meet credit demand

Three banks increased interest rates on deposits in certain maturity bands within two weeks of the new quarter (Q3FY24) to mobilize resources to meet credit demand.

Bank of Baroda (BoB) has raised interest rates on domestic retail term deposits, including NRO (non-resident ordinary) and NRE (non-resident external) term deposits, by up to 50 basis points for various tenors up to three years. These rates are applicable for deposits below Rs 2 crore, effective from October 9, 2023, according to a BoB statement.

Pune-based Bank of Maharashtra (BoM) hiked interest rates by up to 125 basis points in select buckets. It revised the 46-90-day term rate up 125 basis points to 4.75 percent from Thursday.

Mumbai-based Unity Small Finance Bank has developed a special deposit scheme of 701 days from the 18 months – 1000 days group, carrying an interest rate of 7.4% p.a. Now, the 701-day deposit scheme would attract an interest rate of 8.95 percent, effectively increasing the interest rate by 155 basis points.

Bankers said interest rates were adjusted in some terms to bring them in line with market rates, given the competition to attract more money into deposits.

Banks raised significantly more funds in the first six months of the current financial year (H1FY24) compared to the same period in FY23. Data from the Reserve Bank of India showed that commercial banks raised Rs 10.89 trillion till September 22, 2023 in FY24 against Rs 5.66 trillion in the same period in FY23. The growth rate was 6.8% year-on-year to the end of September 2023, up from 3.4% a year ago.

The RBI’s monetary policy report said that across all maturities, the maximum increase was seen in shorter maturities (up to 180 days). The increase in fixed deposit rates in the current tightening cycle has outstripped that of lending rates (both on new and outstanding deposits). However, interest on bank savings deposits – which are a third of total deposits – remained largely unchanged, while current account balances (a 9.6 percent share of total deposits) earned no interest.