The largest bank in the country, the State Bank of India (SBI), has slashed its retail term deposit rate twice in the last fortnight for less than Rs 2 crore deposit category. Many other public and private sector banks are also reducing their term deposit rates as cost of money or interest rates are coming down faster than what many expected. The repo rate borrowings are currently available at 5.4 per cent to banks from the Reserve Bank of India, while new borrowers are taking the best advantage of repo-linked lending rates, that are lower currently. The depositors will do well to park their money in banks that continue to offer high deposit rates as policy interest rates are expected to ease further.
So, where to shop for higher interest rates?
SBI has reduced term deposit rates for deposits below Rs 2 crore. The revised rate for a tenure of less than a year is at 5.80 per cent while deposits for one to two years will earn 6.50 per cent interest rate. In a large bank like SBI, it will be difficult to cut rates drastically or match the lower rates of other midsized state-owned banks or private banks.
The Bank of India (BOI) is offering slightly higher interest rate at 6 per cent for less than a year while it matches the SBI's 6.50 per cent rate for deposits with a tenure of one to two years.
There are some good options for those willing to shop for higher term deposit rates. New private banks could be the best option as they are offering better rates than well-established large banks to attract retail deposits. The new age IDFC First Bank, for example, offers 8 per cent interest rate on one-year deposit. Bandhan Bank, which got the banking license around the same time as IDFC First did, also offers a higher 6.80 per cent rate for one-year deposit and 7.50 per cent for less than two-years deposits. Even if these banks reduce their deposit rates, they will still be offering much higher than other banks. It will be a good strategy to park funds in these banks as their business models support it. The focus of these banks lies on higher yields assets such as loans to self-employed, micro to SME entrepreneurs and serving customers who are under banked and under served.
If one wants to look for slightly more security and a well-established name, the private sector HDFC Bank is a good option to get 6.90 per cent rate for one-year deposits, while it offers 6.80 per cent for one to two years. Kotak Bank, which has also revised its rates on fixed deposits, offers slightly higher rate at 6.75 per cent for deposits of less than a year and 6.7 per cent for those with a tenure of one to two years. Delhi-based Punjab National Bank offers 6.25 per cent rate for deposits of less than a year. Union Bank, which last revised its rates on August 10, is currently offering 6.75 per cent for deposits of one year.
Meanwhile, savings bank rates are currently sticky as banks are offering 3.5 to 4 per cent interest rate. SBI's savings rate is 3.50 per cent per annum. Here again, the new banks, building their low cost deposit base of current account and savings account (CASA), are offering higher rates. Bandhan Bank is offering 6 per cent for daily balance above Rs 1 lakh.
In the PSB space, the Punjab National Bank has a good savings rate for different kind of depositors based on their account balance. For instance, PNB offers higher savings rate of 3.80 per cent for those with account balance of over Rs 50 lakh. Similarly, private bank HDFC Bank is much better with interest rate of 4 per cent for account balance above Rs 50 lakh.