It’s raining bad news for small savers and depositors as interest rates on savings and bank deposits are set to trend lower in the new fiscal.
The government has announced lowering of interest rates on financial savings for life after retirement, while banks too have started taking similar steps as they do not see much opportunity to deploy the fund they are flush with.
Entities like Bank of India and Bandhan Bank have already taken the plunge and industry captains believe that it’s natural for all lenders to slash deposit rates in the quarters ahead, given the size of liquidity available in the banking system and lack of credit demand.
“These are not decisions taken in isolation. It’s often calibrated to growth in credit, competitive scenarios, the credit to deposit ratio of the concerned bank and of course credit quality,” said Federal Bank Managing Director Shyam Srinivasan.
According to Reserve Bank of India statistics, banks’ credit growth at 4.1% at the end of March 3 has hit its lowest in the decade. The banking system is also sitting on a surplus of about Rs 4.68 lakh crore on an average this month, according to data compiled by Edelweiss Financial Services. The government’s move to ban 87% of currency notes in November last year forced people to park their stack of cash in banks.
“Credit growth is at a historical low. Banks have no alternative but to cut deposit rates as they have lesser opportunity to deploy the fund,” Bandhan Bank Managing Director Chandra Shekhar Ghosh said.
Private sector Bandhan Bank, one of the latest entrants in the universal banking space, revised its deposit rates downwards effective March 31, for the second time after demonetization. Bandhan Bank’s highest deposit rate is 7.5% while HDFC Bank offers highest at 6.9% for one year one day to one year three days period. Axis Bank offers 7% as its highest rate for one year to less than two years.
State-run Bank of India has lowered rates on March 29, making deposits less attractive in the medium-term bucket.
The government on Friday lowered interest rates on small saving schemes like public provident fund, senior citizen savings scheme and Sukanya Samriddhi by one percentage point for the April-June quarter.
Many banks including State Bank of India and HDFC Bank have cut deposit rates within a month into demonetisation and industry observers believe that they are in for another round of cut in the first quarter of FY18.