RBI governor Shaktikanta Das sees a ghar wapsi for deposits if banks...

RBI Governor Shaktikanta Das has called on banks to become more innovative in attracting deposits, as retail investors increasingly turn to alternative investment avenues. "Alternative investment options are becoming more appealing, making it challenging for banks to raise deposits. This could lead to liquidity issues. Banks must innovate to attract deposits," Das emphasized during his monetary policy review on August 8.

The Monetary Policy Committee (MPC) of the Reserve Bank of India decided to keep the repo rate unchanged at 6.5 percent by a 4:2 majority in the six-member panel. The committee also maintained its focus on the 'withdrawal of accommodation' stance by the same majority. Consequently, other rates such as the Standing Deposit Facility (SDF), Marginal Standing Facility (MSF), and the Bank Rate remained unchanged.

Das highlighted that domestic economic activities continued to show resilience, projecting the real GDP growth at 7.2 percent for 2024-25. Despite speculations of a repo rate cut later this year, which could lead to lower interest rates on fixed deposits, wealth advisors recommend locking in money now to benefit from the currently high rates.

Understanding the impact of small rate changes on fixed deposits is crucial. For instance, a 25 basis points difference can yield an additional ₹3,750 on a ₹5 lakh FD locked for three years at 7.5 percent, compared to 7.75 percent. A 50 basis points difference can result in ₹7,500 more over the same period. Thus, higher amounts and longer tenures amplify these differences.

Wealth advisors strongly suggest locking fixed deposits at prevailing high interest rates, as they are unlikely to last. As inflation is somewhat controlled and global market conditions are favorable, a rate cut by the RBI seems probable in the near future. 

Locking in fixed deposits now can safeguard against potential future rate declines.

Experts, however, have cautioned against locking a large portion of funds in fixed deposits despite the attractive current rates as they are taxable and often fail to generate inflation-hedged returns in the long run. Locking money in fixed deposits at the current high rates is advisable, as interest rates are likely to decrease soon.