HDFC Bank, the second-largest private bank in India that’s known for its conservative approach, on Thursday raised deposit rates on certain maturities by 50-100 basis points (bps), hinting it’s either under liquidity stress or is seeing very strong credit growth or being hit badly on deposits by low-Casa rivals offering higher rates.
The bank said it will offer 7% on 61-90 day deposits, 7.5% for 91 days to six months, and 9.25% on 2-, 3- and 5-year deposits.
The rates are applicable immediately, a spokesperson from the bank said.
The move is unlikely to do much with loan growth and may be a marketing strategy to scoop up funds before the end-of fiscal rush among banks begins, aver some.
Rajiv Mehta, analyst with domestic brokerage IIFL, said, “This is really an incredible move by the bank as the system itself is close to the peak of deposit rate hikes. It appears as though the credit demand for this particular bank is very high. This may be followed by a hike in lending rates by at least 50 bps.”
State-owned bankers, on the other hand, are still not being able to fathom the HDFC Bank move.
They say with Reserve Bank of India cutting cash reserve ratio by 50 bps, the banking system has received an additional liquidity boost, thus an immediate deposit rate hike may not be warranted.
P Sitaram, chief financial officer, IDBI Bank, said, “Banks will need to be careful before raising deposit rates as in the current situation credit demand is not that robust. Therefore, banks may find it difficult to pass on the increased costs to the lending side.”
The deluge of deposit rate hikes by banks in the last few quarters has translated into a pressure on margins, say some other bankers.
PV Raveendran, general manager- retail, Central Bank of India, said, “We are as of now finding it difficult to deploy our existing funds profitably. Currently, the idea of raising deposit rates further is ruled out. Our net interest margins are as it is getting squeezed in the current rates offered.”
It is expected that deposit rates will begin to fall only after RBI signals a cut in key interest rates in its monetary policy.
Both Sitaram and Raveendran agree that this will not happen before the first quarter of the next financial year when the banks will not be worried about displaying higher deposits on their books.
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