The good old days of high FD rates are back. As banks—hard-pressed for funds—raise fixed deposit rates, risk-averse investors, who prefer the safety of bank deposits that earn them a fixed amount at regular intervals, are all set to reap rich dividends.
This is great news for senior citizens, mainly the retired people, who have most of their life’s savings in bank FDs and depend on interest income they earn on these. What is more, market players believe the FD rates have not yet peaked and expected to go up further from here.
Consider this: On Tuesday, IDBI Bank said it will pay an interest rate of 10% to senior citizens for FDs of 1,100-day maturity. For regular customers, the applicable rate of interest for the same maturity is 9.25%. The icing on the cake is that the bank will not charge any penal rate in case any of its customers, across all maturities, decides to break an FD before maturity.
Compared to IDBI Bank’s rates, SBI is paying senior citizens 9.5% for FDs of 555 days and 1,000 days, and 9% to regular customers. And HDFC Bank will pay 9.50% to senior citizens and 9% to regular customers for FDs of 2-yearand-16-day maturity. The case is the same for most other banks, including foreign banks, which have hiked FD rates several times in the last few months.
Not only in one, two and three-year brackets, even for shorter duration FDs, rates have been increased. For example , IDBI Bank is paying 8% for FDs of 279-day to 1-year maturity, SBI is paying 7.75% for FDs of 181 days to 1 year and HDFC Bank is paying 7.75% for the 9-monthand-16-day scheme, all to regular customers. For senior citizens, the rates are higher by 50-75 basis points.
There are at least three reasons why banks are competing for FD funds and the fight could continue for some more months. For one, the loan growth of banks is higher than deposit growth in the economy. Recently, in its policy review meeting, Reserve bank of India (RBI) pointed out that while loan growth rate was at nearly 23%, the corresponding number for deposit growth was about 15%. This means loan offtake from banks had a much higher rate than the rate at which people were keeping money with banks, an undesirable situation for the banking system.
On its part, to tackle inflation , RBI has tightened the liquidity situation. The latest WPI figure was 7.4% while the food inflation rate was 14.4% with expectations that both these rates would again rise. “Unless inflation is brought under control, RBI will not ease the liquidity situation in a big way,” said a bond dealer. “And there is no indication that inflation will come down anytime soon,” he added. Recently, RBI has announced open market operations (OMOs) and cut down on the size of government borrowing to ease the extremely tight liquidity situation to some extent. The net repo outstanding has now come down to about Rs 69,000 crore from a high of Rs 1.7 lakh crore on December 22.
The Rate Card
State Bank of
555 days and 1,000 days: 9% for regular customers, 9.50% for senior citizens
ICICI Bank
990 days: 8.50% for regular customers, 9.25% for senior citizens
HDFC Bank
2 years, 16 days: 9% for regular customers; 9.50% for senior citizens
IDBI Bank*
1,100 days: 9.25% for regular customers, 10% for senior citizens
Bank of
1-2 yrs: 8.50% for regular customers, 9% for senior citizens
*No penalty on pre-mature breaking of FDs, unlike other banks
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