Banks forced to offer inflation-beating FD rates

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.

The high rate offering also comes as banks have almost fully passed on the 250-bps hike in RBI rate since May last year to their borrowers, they've not been doing so for deposits, leading to a funding gap and forcing them to borrow from the market.

According to the new deposit pricing, on average any depositor of a public sector bank is assured of 7 to 7.25 per cent for fixed deposits for a tenor ranging from 200 days to 800 days.

The nation's largest lender State Bank of India, which has the largest retail franchise with around 20,000 branches, is offering 7.10 per cent for the general public and a higher 7.60 per cent to senior citizens on an annualised basis for fixed deposits in the 400 days bucket.

Punjab & Sind Bank is offering the highest at 8 per cent to retail depositors, and 8.50 per cent to senior citizens for the 221-day bucket.

The Central Bank of India gives the second best rate at 7.85 per cent to senior citizens for 444 days and 7.35 per cent to retail, while Union Bank of India is pricing its 800 days deposits at 7.30 per cent and 7.80 per cent for retail and senior citizens.

Punjab National Bank is offering retail and senior citizens, respectively, at 7.25 per cent and 7.75 per cent on its 666 days bucket, Bank of Baroda's new pricing comes at 7.05 per cent and 7.755 per cent for 399 days; Bank of India is offering the same rate as that of Bank of Baroda for 444 days, while Bank of Maharashtra's new rate is 7 per cent and 7.50 per cent for 200 days.

For 400 days, Canara Bank is offering 7.15 per cent and 7.65 per cent; Indian Bank is paying 7 per cent and 7.50 per cent for its 555 days deposits; UCO Bank comes at 7.15 per cent and 7.25 per cent for 666 days; and Indian Overseas Bank is offering 7 per cent and 7.50 per cent for 444 days.

On the other hand, the largest private sector lender HDFC Bank offers only 7 per cent to the general public and 7.50 per cent to senior citizen depositors for five years, while its immediate peer ICICI Bank gives 7 per cent for more than 15 months to retail and 7.5 per cent to senior citizens for over 15 months.