HDFC Bank and ICICI Bank reduce one-year fixed deposit rates as credit offtake remains sluggish; more banks to follow
Private sector lenders HDFC Bank and ICICI Bank have reduced their one-year fixed deposit rates. ICICI Bank brought down its one year deposit rate from 6.75% to 6.60% while HDFC Bank brought down its deposit rate from 7 % to 6.75% . For deposits of over two years the rate of interest is 6.25%.
State Bank of India had on November 1 reduced the one-year deposit rates to 6.25% from 6.50%. Surplus liquidity and meagre demand for credit is forcing banks to bring down the interest rates on fixed deposits.
HDFC Bank revised its fixed deposit rates effective December 6, while ICICI Bank reduced rates from December 13, 2017.
But SBI and Punjab National Bank had hiked the bulk deposit rates in the last few weeks. While SBI hiked its bulk deposit rates to 4.75% from 3.75% with effect from November 29, PNB hiked it to 5% with effect from December 4.
Praveen Kumar Gupta, managing director, SBI, said, "The hike in the bulk deposit rates was only to align it to the market rates. Post demonetisation, the system was flush with liquidity, so we were discouraging it, but now the excess liquidity in the system is less than Rs 1 lakh crore and RBI has said that it will bring the liquidity to neutral by March 2018 so we need to have sufficient liquidity."
The fixed deposit rates are expected to remain at the current rates. But economic growth sagging and inflation inching up is a concern as it raises the possibility of RBI hiking rates.
Deposit rates are going to fall further for many banks sitting on surplus liquidity and demand for loans coming only from the retail segment, bankers said.
"Home loans and car loans are not enough to pull up the credit growth of banks. We need large capex demand to come so there is a shift back from the investment to the core credit activity. But even brown field expansion demand not visible," said a private sector banker.
Inflation is another worry for both lenders and companies. Though RBI revised its projection for inflation from 4.7% to 4.8%, the risks from crude oil prices, the US tax reforms leading to US treasury yields rising and general food prices are worries for the central bank.
A cyclical recovery and higher commodity prices should boost working capital needs, while the availability of growth capital after the recently announced recapitalisation plan should also enable public sector banks to extend additional loans," brokerage Nomura said in a report.
The extended pause that is being forseen by banks is another reason for loss of hope of a credit growth. If Inflation inches up and FPIs get better returns from US treasury it is another problem for emerging markets like India.
Duetsche Bank said in a report, "We expect the RBI to remain on an extended pause and don't see any change in the policy rate through 2018, under our base case scenario of global oil prices remaining around $60/barrel or lower through the next fiscal, the government sticking to the fiscal deficit targets of FY18 and FY19 and a normal summer monsoon. Under these conditions, we expect CPI inflation to average 4.5% in FY19, GDP growth to improve to 7.5%.
"In our view, one 25 bps rate hike is meaningless and if the RBI has to embark on a rate hike cycle, then there will need to be a credible macro story to support a 50-75 bps rate hike, which we don't see present at least for 2018," Duetsche Bank said.
Inflation is expected to play a spoilsport in a market when there is no avenue for growth in the economy.
The headline consumer price index (CPI) inflation accelerated to 4.9% year on year in November – a 15-month high. "This compares with 3.6% yoy in October and was higher than our and consensus expectations. The surprise was largely due to a higher-than-expected increase in food (vegetable) and fuel prices. The increase in headline inflation was broad based and to some extent was also driven by an unfavorable base effect of 0.60%. On a seasonally adjusted sequential basis, the overall consumer price rose 1.2% in November from 0.6% in October," Morgan Stanley said in a report
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- Fixed deposit rates are expected to remain at the current level
- But, economic growth is sagging and inflation inching up
- That is a concern as it raises the possibility of a rate hike by RBI
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But SBI and Punjab National Bank had hiked the bulk deposit rates in the last few weeks. While SBI hiked its bulk deposit rates to 4.75% from 3.75% with effect from November 29, PNB hiked it to 5% with effect from December 4.
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