While deposit rates moved up last year, cheering depositors, the RBI’s policy rate cut in February this year is likely to nudge banks to trim deposit rates over the coming months. Though a sharp cut is unlikely in the near term, depositors with surplus funds should consider locking into attractive rates now. DCB Bank offers 8.05 per cent for deposits with a tenure of 15 months to less than 24 months. The bank also offers a similar 8.05 per cent on its 36-month deposit.

Lock-in now

Banks have not yet cut deposit rates since the February policy, owing to pressure on their deposit growth. But further cuts by the RBI can nudge them to make a move in the coming months. Hence, shop for higher rates now.

Our study of deposit rates of over 45- and 20-year periods found that locking into high rates can earn you higher returns over the long run.

For instance, if you had put money in a five-year FD in 2009-10, when rates were near the bottom, your deposits would have delivered little over 7 per cent annual returns until now, if re-invested. If, on the other hand, you had invested in a five-year deposit in 2007-08, locking into higher rates of 8.5 per cent, your deposits would have clocked about 8.5 per cent annual returns.

Hence, if you have surplus funds, be sure to park some money at near peaks of deposit rates such as now (though, at previous peaks, rates had been close to 9 per cent).

DCB Bank’s 8.05 per cent is among the best offered by traditional banks currently. Most other banks offer 6.5-7.5 per cent for two to three-year deposits; though there are a few others (IDFC First Bank offers 8.25 per cent for a 731-day deposit) including small finance banks that offer a higher 8-9 per cent. If you have already explored these options or find it operationally difficult to invest in these banks, DCB Bank’s deal is a good one to consider.

DCB Bank has a fairly good network with 331 branches spread across 19 States.

So, which tenure should you choose? A two-year option can work well as it mitigates the uncertainty over reinvestment risk — inability to reinvest at the existing rate. The shorter tenure can also allow you to cash in on any rate hikes two years or so hence. Given that interest rate cycles have become relatively shorter over the past 2-3 years, sudden reversal in rates (from rate-easing now to hikes) cannot be ruled out.

If you are looking for a longer horizon, DCB Bank’s 8.05 per cent for 36-month deposits is also a good option.

Remember, bank deposits score on safety as they are covered by the Deposit Insurance and Credit Guarantee Corporation of India (DICGC). Each depositor is insured up to ₹1 lakh for both principal and interest.

DCB Bank, with a new management since 2009, had shifted its focus towards secured lending, which helped it tide over its asset quality issues. The bank has delivered a healthy 25 per cent annual growth in advances between FY13 and FY18. The bank predominantly focusses on mortgages and the SME segment. It has been able to maintain its asset quality — gross non-performing assets as a percentage of loans has ranged 1.5 per cent to 1.9 per cent over the past five fiscals. As of December 2018, gross NPAs stood at around 1.9 per cent.

However the bank’s scale of operations is still modest, and so are its return ratios. As of December 2018, its returns on asset stood at 1 per cent, while returns on equity stood at 12.6 per cent. Investments in branch expansion and technology have kept profitability modest. Nonetheless, the bank’s steady focus on SME, new branches’ scaling, and healthy capital ratios lend comfort to earnings.

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