With deposits falling, many Indian banks are launching special deposit schemes to attract customers. These schemes typically offer higher interest rates and features designed to attract more funds.
“These fixed deposits are called ‘special’ because they offer unique features that differentiate them from regular fixed deposits, making them an attractive option for investors. One of the key reasons why special fixed deposits are attractive is that they offer higher interest rates compared to regular fixed deposits,” says Adhil Shetty, CEO, Bankbazaar.com.
SBI Amrit Vrishti Scheme
State Bank of India (SBI) has introduced Amrit Vrishti scheme, a 444-day fixed deposit scheme offering 7.25% interest per annum for regular customers and 7.75% for senior citizens. Launched on 15 July 2024, the scheme is available till 31 March 2025 and can be accessed through various SBI platforms including branches and online services.
Bank of Baroda Dhamaka Monsoon Scheme
In July 2024, Bank of Baroda launched its ‘Monsoon Dhamaka Deposit Scheme’, offering an interest rate of 7.25% for a tenor of 399 days and 7.15% for a tenor of 333 days. Senior citizens receive an additional interest rate of 0.50%, making the rates 7.75% and 7.65% respectively.
Other offers
IDBI Bank has also increased its fixed deposit rates, now offering 7.85% for a tenor of 444 days and 7.75% for a tenor of 375 days. Similarly, Bank of Maharashtra has introduced various fixed deposit schemes with tenors ranging from 200 to 777 days, offering interest rates of up to 7.25%.
Why do banks have problems with deposits?
Despite these attractive offers, many banks have reported a decline in their deposits for the quarter ending June 2024. Customers are increasingly looking to alternative investment avenues, such as capital markets, in search of better returns.
SBI’s deposits fell to Rs 49.01 trillion in June 2024, from Rs 49.16 trillion in March 2024. Bank of Baroda saw a similar decline, with deposits falling from Rs 13.26 trillion to Rs 13.06 trillion during the same period. Even private sector giant HDFC Bank saw its deposit base remain stable at Rs 23.76 trillion in June 2024.
Current and savings account (CASA) deposits, which are usually a stable source of funds for banks, also declined. For instance, SBI’s CASA deposits fell from Rs 19.14 trillion in March 2024 to Rs 19.41 trillion in June 2024, adding to banks’ concerns.
What is the credit-deposit ratio?
The credit-to-deposit (CD) ratio measures what percentage of a bank’s deposits are lent out in the form of loans. A balanced CD ratio is necessary to maintain liquidity and ensure that banks can meet withdrawal demands while still earning profits from lending.
Why is it important?
Liquidity management: A high term deposit ratio indicates that most deposits are tied up in loans, which can be risky if there is a sudden surge in withdrawals. On the other hand, a low ratio could indicate that the bank is not making the most of its available funds.
Risk assessment: Regulators keep a close eye on this ratio. A very high CD ratio could indicate potential risk, while a very low one could indicate overly conservative lending practices.
Profitability and growth: An optimal CD ratio helps banks strike a balance between profitability and stability, ensuring that loans generate income without compromising the bank’s ability to meet depositor demands.
Economic indicator: The CD ratio can also reflect the state of the economy as a whole. A rising ratio during economic booms suggests active lending, while a falling ratio during recessions indicates caution.
Regulatory compliance: Central banks typically set guidelines for this relationship to ensure financial stability, and banks that fail to comply can face penalties.
RBI concerned over slow deposits
The Reserve Bank of India (RBI) is increasingly concerned about the widening gap between high debt levels and slow deposit growth. This has led to the worst deposit crisis in two decades, with the term deposit ratio at a ten-year high.
Customers are borrowing more, particularly for housing, but slower deposit growth is creating an asset-liability mismatch for banks. Reserve Bank of India Governor Shaktikanta Das said: “Indian youth are aspirational and there is nothing wrong with that. It is a natural process and actually a positive development. Our advice to banks is that they should keep a close eye on this shift. Currently, this is not a problem, but in the future, it may lead to a structural liquidity problem.”
Finance Minister Nirmala Sitharaman recently met heads of public sector banks and urged them to focus on increasing deposit growth. She underlined the need for innovative products to attract deposits and address the asset-liability mismatch. With deposits growing 300-400 basis points slower than credit growth, banks are under pressure to rapidly increase their deposit base.
First published: August 21, 2024 | 17:39 IS
Disclaimer
The information contained in this post is for general information purposes only. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to the website or the information, products, services, or related graphics contained on the post for any purpose.
We respect the intellectual property rights of content creators. If you are the owner of any material featured on our website and have concerns about its use, please contact us. We are committed to addressing any copyright issues promptly and will remove any material within 2 days of receiving a request from the rightful owner.