In some respite to small investors, several banks have increased term deposit rates in recent weeks.

While the Reserve Bank of India has maintained the status quo on rates following the bi-monthly monetary policy meeting on February 10, bankers expect interest rates to have bottomed out.

Lenders including State Bank of India, HDFC Bank, IndusInd Bank, Federal Bank and IDBI Bank have increased fixed deposit rates on various tenures.

Experts point out that credit growth has also led to banks selectively increasing deposit rates and expect the credit to deposit ratio to improve going forward.

“As the credit growth is showing some signs of improvements, hence many banks, namely SBI, HDFC and Kotak Bank and Bank of Baroda have increased interest rate on fixed deposits. In fact, it is the third time for the HDFC Bank wherein it has increased FD rates in the past two months whereas the same stands for two times in the past two months for SBI,” said a recent report by CareEdge.

The Credit to Deposit (CD) ratio stood at 72.2 per cent, improving from fortnight by 31-basis points (ending January 14, 2022). However, it declined by 10 basis points as compared with the previous year due to credit growth underperformance as compared to the deposit growth, it further said.

Prakash Agarwal, director and head of financial institutions at India Ratings and Research, noted that there has been a revival in bank credit, which is spurring certain banks to raise rates on fixed deposits.

“Certain banks that have started seeing faster credit growth have started making deposits more attractive by raising rates, in certain tenors to support their asset liability maturity profile,” Agarwal noted.

Bank credit grew by 8.2 per cent year on year to ₹1,15,82,442 crore for the fortnight ended January 28, 2022 while aggregate deposits increased by 8.3 per cent year on year to ₹1,60,32,905 crore for the fortnight ended January 28, 2022.

However, experts believe banks will wait for further signals from the RBI before deciding on an across the board increase in deposit rates.

The RBI, in its monthly bulletin, has also indicated that banks have started pricing their deposits at higher rates in recent months.

“The median term deposit rate (MTDR) moderated by 151 bps during March 2020 to January 2022 on account of surplus liquidity. The perceptible decline of 178 bps is particularly discernible for shorter tenor deposits of maturity of up to one year,” said the article “State of the Economy”.

Private banks have effected higher pass-through to term deposit rates than public sector banks on robust deposit growth. However, SCBs have reached an inflection point, it said.

With an increase in credit demand and lower accretion in aggregate deposits, banks have started pricing their deposits at higher rates in recent months. It noted that as a result, the MTDR rose marginally by five basis points since October 2021.

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