If you thought that fixed deposits in banks are safe, you may be right. But if you are under the impression that they give steady returns, you might have to think again.
After the largest lender, the State Bank of India, cut deposit rates by 25 to 50 basis points (0.25 to 0.5 percentage points) on Thursday, other public sector banks are gearing up to reduce interest rates on deposits.
Bank of Baroda’s asset and liability committee (ALCO) is slated to meet next week to take a decision that could make fixed deposits less attractive.
Mid-sized Corporation Bank is also expected to announce a cut in deposit rates by 25 to 50 basis points. The new rates would be effective from April 15.
Bank deposits with double-digit returns last year were considered safe and rewarding as uncertainty and panic gripped the real estate and stock markets.
However, public sector banks are now looking at cutting deposit rates drastically to match lending rates, which are moving southward – or need to – as policy-makers focus on reviving demand-led growth, with inflation under control. The government has been putting pressure on bankers to cut lending rates.
Bankers say they must bring down the cost of deposits to make lending cheaper, for which deposit rate cuts are crucial.
“Our ALCO would be meeting during the course of the next week to assess the situation and possibly looking for a reduction in deposit rates,” M.D. Mallya, chairman and managing director, Bank of Baroda, told Hindustan Times.
JM Garg, CMD, Corporation Bank said, "We will reduce our deposit rates from April 15. We have already reduced our lending rates from April 1."
Bank of Maharashtra’s chairman and managing director Allen CA Pereira said that the bank had recently cut deposit rates. The highest return now being offered is 8.25 per cent.
However, the ALCO would meet next month again to review the situation. “We have to keep in mind the interest of the depositors as well,” he said.