Banks have started offering higher rates on short-term deposits as liquidity remains tight despite the Reserve Bank of India (RBI) purchasing government bonds via open market operations (OMOs) on a regular basis.
Recently, Dena Bank increased rates on deposits of 1-2 year tenure by 35 basis points to 9.1%.
“We are seeing a credit pick-up in segments other than new projects. The revision in interest rates is to correct asset-liability mismatch in those tenure buckets,” said a Dena Bank official, requesting anonymity.
Federal Bank, too, has raised rates on deposits of 1-3 year tenure from both resident and non-resident customers to 9% from the current 8.75%.
On the other hand, Corporation Bank is taking deposits between Rs10,000 and Rs5 crore at 9.25% for 444 days and 9% for 222 days for an unspecified limited period. The offer is also applicable to non-resident Indians.
To be sure, the central bank has infused Rs31,158 crore via OMOs since the start of this month. Still, banks are withdrawing Rs1.2-1.5 lakh crore daily from RBI’s repo window. Part of the liquidity tightness is seasonal, say bankers, coming after the festive season when money in circulation increases.
“As the festive season ebbs away, typically, banks increase deposit rates in the December-January period to attract the money making its way back into the banking system,” said Ajay Marwaha, executive vice-president and head of trading at HDFC Bank. “It also depends on the interest rate cycle,” he said.
Advance tax outflows and quarter-end liquidity pressures also have a role. But a good part of it has to do with the fact that deposit growth continues to lag credit growth.
At the end of November, credit was up 17% compared with last year, whereas annual deposit growth was way lower at 12.76%, as per RBI data. Banks had disbursed around Rs65,000 crore of loans, while deposit accretion was about Rs33,000 crore in the fortnight ended November 30.
No surprise the lenders are pushing up interest rates at the shorter end of the curve.