Introduction:

In the dynamic landscape of banking, the share of term deposits (TDs) offering 7% and above interest rates has significantly increased to 64.4% of banks’ total TDs by the end of March 2024, marking a considerable rise from 33.7% as of March 2023.

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Increase in TDs Offering Higher Interest Rates

An in-depth analysis of RBI data reveals that by March-end 2024, 58.9% of the term deposits of banks carried interest rates ranging between 7% and 8%, compared to 30.3% in the previous year. Furthermore, 5.5% of TDs carried interest rates above 8% as opposed to 3.4% in March 2023.

Rates Offered by Leading Banks

Key players in the banking sector are competitively offering attractive interest rates. For instance, the State Bank of India offers 7% on a TD lasting between 2 to less than 3 years. Meanwhile, HDFC Bank provides 7.25% on a TD spanning 18 months to less than 21 months, and AU Small Finance Bank presents 8% on an 18-month term deposit.

Small finance banks like Ujjivan and Suryoday are going a step further by offering 8% and above interest rates on select maturity buckets.

Challenges in Deposit Mobilisation

Despite the attractive TD rates, banks are facing challenges in deposit mobilisation. Other investment avenues such as equities, mutual funds, and non-convertible debentures are yielding higher returns, leading to a disparity between credit and deposit growth rates.

Credit and Deposit Growth Scenario

As of March 2024, bank credit and deposits saw a year-on-year growth of 19.3% and 13.5% respectively. There is a growing concern within the banking sector regarding the need to enhance deposit growth to support credit expansion. Analysts suggest that banks need to focus on strengthening their liability franchise to maintain a balanced portfolio.

In his recent monetary policy statement, RBI Governor Shaktikanta Das emphasized the importance of re-strategising banks’ business plans to bridge the gap between credit and deposit growth.

Published on June 23, 2024