Term deposits will now earn customers more interest, with banks including State Bank of India (SBI), Punjab National Bank (PNB), IDBI Bank and Karur Vysya Bank increasing deposit rates up to 0.75 per cent across various maturities.
The country’s largest lender SBI increased deposit rates up to 0.75 per cent to attract depositors, while PNB raised interest rate on fixed deposits by 0.25-0.50 per cent across various maturities. IDBI Bank hiked rates by 0.15-0.50 per cent on various slabs and south India-based Karur Vysya Bank increased rates in the range of 0.25-0.50 per cent.
The move aims at mobilising more funds to meet credit demand. “Interest rates on retail term deposits have been increased to attract more depositors,” said R.K. Bansal, executive director and group head, retail banking, IDBI Bank.
There is also a policy push behind the deposit rate hike given by the Reserve Bank of India (RBI), which wants these rates to go up.
“Real rates need to move in the direction of encouraging bank deposits, so that bank credit does not become a constraint to growth,” the RBI said last month in its monetary policy review.
“The central bank has expressed concern over the negative real interest rate in the Indian banking sector and banks are addressing the concern by hiking deposit rates,” said Sampath Kumar, banking analyst, India Infoline.
Negative real interest rates refer to the difference between deposit rates and inflation. It indicates that bank deposits have not been adequately protected against declining value of money due to inflation.