First time in many years, fixed deposit rates turn positive at 8%
The Hindu
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
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 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.
Also read: Huge increase in post-office savings bank interest rates
Even at the lowest 7%, fixed deposit pricing is positive for customers because even after a surprise spurt in retail inflation for January at 6.52%, the real rates are in the green.
Inflation has been over 6% for 10 months of 2022 forcing the Reserve Bank to increase rates by 250 bps to 6.50% through six consecutive hikes beginning May 2022.
For the fortnight to January 13, 2023, credit growth rose 16.5% annualised as against 10.6% 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% and 6.8% for two years, while 10-year government securities yield just 7.35%.