Fixed deposit rates turn positive at 8%

As banks’ chase for customers to collect cheap deposits is not fructifying, they are forced to offer inflation-beating real interest rates on fixed deposits now, and state-run banks led by Punjab & Sind Bank tops the chart offering 8-8.50 per cent per annum deposit rate.

Banks are forced to offer inflation-beating deposit rates for a tenor ranging from 200 to 800 days as credit growth has been far outpacing deposit mobilization throughout this fiscal, leading to a funding crunch.

Even at the lowest 7 per cent, fixed deposit pricing is positive for customers because even after a surprise spurt in retail inflation for January at 6.52 per cent, the real rates are in the green.

Inflation has been over 6 per cent for 10 months of 2022 forcing the Reserve Bank to increase rates by 250 bps to 6.50 per cent through six consecutive hikes beginning May 2022.

For the fortnight to January 13, 2023, credit growth rose 16.5 per cent annualised as against 10.6 per cent growth in deposits. In fact, for almost the entire year, deposit growth has been in the mid-single digit and the recent spike is due to an increase in deposit rates since December.

The rates are better even from other angles, too, as one-year post office deposit fetches 6.6 per cent and 6.8 per cent for two years, while 10-year government securities yield just 7.35 per cent.