State Bank of India (SBI) and Bank of India (BoI) announced a hike in their deposit rates by 1.0 and 1.5 percentage points respectively on Monday, following ICICI Bank, Punjab National Bank and Syndicate Bank.
SBI is now offering 7.75% on its 1-year deposit compared to 7% it offered earlier. SBI’s new rates will become effective from Tuesday while those of BoI from Monday. Other banks are expected to follow.
Unlike HDFC and ICICI Bank, however, SBI and BoI have left their lending rates untouched. Over the weekend, HDFC and ICICI Bank had raised their lending rates by 50-75 basis points (100 basis points makes 1 percentage point).
Banks are being forced to raise rates because of shortage of money in the economy, following the government’s step to raise funds through 3G auctions and the mega IPO of Coal India. This lack of cash in the economy will tighten further when companies and individuals pay their advance taxes for the third quarter to be paid in mid-December.
Add to this the 1 percentage point increase to 6% in the CRR over the past one year. Earlier, RBI governor suggested that banks should increase the deposit rates to offer better returns to the depositors.