Indian Banks Offer Higher Rates to Attract Savers

Indian banks have started special plans to attract more retail deposits, offering savers at least 25-30 basis points more than current rates for similar terms. This suggests that policy interest rates will stay high for a while.

Banks like SBI, Bank of Baroda, Indian Overseas Bank, Union Bank of India, and Bank of Maharashtra are now offering deposit plans with rates between 7.25% and 7.30% for terms ranging from 399 to 444 days. Senior citizens get an extra 50 basis points. These changes come shortly after the Reserve Bank of India (RBI) met with bank CEOs.

The RBI told banks to close the gap between deposit and credit growth. According to the latest RBI data, bank credit grew 14% year-on-year as of June 28, while deposits grew by 11%.

Experts say that banks are offering these high rates for short-term deposits because they expect the interest rate cycle, which was supposed to turn around later this year, to stay high due to steady inflation.

“Banks are offering higher rates for deposits of less than two years because they don’t want to be stuck with high-cost liabilities when the interest rates eventually drop,” said Anil Gupta, senior vice president of financial sector ratings at ICRA.

However, RBI governor Shaktikanta Das recently said that it is too soon to expect a rate cut due to uncertain economic conditions both globally and in India.

Lenders are finding it hard to raise retail deposits and have thus launched these limited-period schemes, said a treasury head from a commercial bank. Bankers believe that if credit growth continues at 14-16%, they will need to offer better interest rates to attract deposits.

For example, SBI’s Amrit Vrishti plan offers 7.25% for 444-day deposits, and Bank of Baroda’s Monsoon Dhamaka plan offers 7.25% for 399-day deposits. Indian Overseas Bank offers 7.30% for 444 days, and Bank of Maharashtra gives 7.10% for 400-day deposits.