The war for savings accounts has intensified further, with Yes Bank on Thursday hiking interest rates for both resident and non-resident customers.
A resident savings account with a balance of over `1 lakh will now fetch 7% interest, 100 basis points more than that offered on accounts with deposits below `1 lakh.
For the record, Yes Bank was the first to hike its savings bank account interest rate to 6% after the Reserve Bank of India (RBI) deregulated the accounts in its October policy.
Since then, Kotak Mahindra Bank and IndusInd Bank have raised their savings rates. While Kotak Mahindra is offering a blanket 6% on all savings accounts, IndusInd Bank is offering 5.5% where the balance is below `1 lakh and 6% for accounts having more than that.
The compulsion for such banks is clear — they want to shore up the proportion of their current account and savings account (CASA) depositsin total deposits to cut dependence on higher-cost bulk deposits.
Rajat Monga, chief financial officer, Yes Bank, conceded as much. “We have nothing to lose, only customers to gain. This increase in rates will help us in improving our CASA ratio and will aid our plans of increasing our branch network,” he said.
Yes Bank’s CASA ratio stands at 11%, of which savings accounts make up only 2%.
The bank aims to treble its network of 350 branches by 2015.
Other small banks are expected to follow, though few believe any of the biggies will, particularly given expectations that the RBI will start cutting key rates in the months to come.
“For banks which have a permanent market share and also a higher ratio of savings accounts in their business mix, it does not make any sense to increase rates. They may lose a few customers, but paying higher rates to a huge number of customers won’t be viable for them,” said Vaibhav Agarwal, vice-president (research), Angel Broking.
Meanwhile, mirroring the rates on resident term deposit rates of one year and above, Yes Bank also raised the interest rates on NRE fixed deposits to a peak rate of 9.60%.
Larger peer HDFC Bank too raised its NRE deposit rates on Thursday — on 1-2 year deposits to 9% from the current 3.82%; on 2-3 year deposits to 8.5% from 3.5%; and on 3-5 year deposits to 8.25%.
The moves follow the recent deregulation of norms on non-resident deposit rates, which were earlier regulated and linked to the London interbank offer rate, or Libor.
While larger banks, with the exception of HDFC Bank, have kept away from competition, smaller banks are sweating it out for non-resident deposits as well.
Among others, Dhanlaxmi Bank has raised interest rates on 1-3 year term deposits to 8% per annum from the current 3.82%, and on 3-10 year deposits to 7.75% annually.
Similarly, Laxmi Vilas Bank also raised its NRE deposit rates this week.
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