Economy and Policy

Interest Rates On FDs To Stay Elevated For Longer: Report

Kotak Mahindra Bank, on the other hand, has hiked interest rates on some fixed deposits of tenures above three years by 50 to 75 basis points

Fixed Deposit interest rates
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Deposit rates are likely to be higher for a long time due to strong credit growth, tight liquidity and stiff competition for funds as suggested by analysts. Banks of both big and small sizes have increased their fixed deposit rates as they aid funds to meet credit requirements.

Analysts told ET that banks are compelled to hike deposit rates. State Bank of India raised interest rates on certain term deposits by 25 to 50 basis points last week. It also launched a scheme to offer rate of interest of 7.10 per cent for a tenure of 400 days, valid till March 31, 2024. Kotak Mahindra Bank, on the other hand, has hiked interest rates on some fixed deposits of tenures above three years by 50 to 75 basis points. DCB Bank, a new generation private sector bank, hiked its rates by 10 basis points to 7.85 per cent in the 12 months 1 day to 12 months 10 days bucket.

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Following the Centre’s announcement of the withdrawal of Rs 2,000 banknotes, banking sector liquidity has reduced to a deficit of Rs 1.2 lakh crore from around Rs 2.5 lakh crore surplus in the beginning of August. Although credit growth eased to 15.8 per cent year-on-year from 17.4 per cent a year ago, it is still higher than the 13.3 per cent growth in deposits, RBI data, excluding the HDFC merger impact, show.

Analysts anticipate that the loan growth will remain around 15 per cent next fiscal year, driving higher rates to enable banks to garner deposits or slow down loan disbursals altogether.

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