Banks likely to raise interest rates on fixed deposits: key points to know

According to the latest report by rating agency firm, ICRA, banks in the country are likely to raise deposit rates in the upcoming term. This could be done in the wake of the fact that the banks' credit has outpaced deposits over the months, which has pushed the credit-deposit ratio upwards. 

The agency, in a report on Tuesday, stated that the recent capital allocation of Rs 88,139 crore into state-run lenders by the government under the recapitalisation programme is expected to improve the ability of public sector banks (PSBs) to pursue credit growth in the coming months.

The incremental credit in the current financial year (till January 5) stood at Rs 2.02 lakh crore, far outpacing the additional deposits of Rs 1.27 lakh crore, the rating agency said. 

Below are the five key points to know about the ICRA report. 

1. Between September 29, 2017 to January 5, 2018, the incremental credit of Rs 1.85 lakh crore, was significantly higher than the accretion of deposits of Rs 0.30 lakh crore.

2. The slow accumulation of deposits can partly be attributed to the continued increase in currency with public (CWP), which increased by Rs 1.36 lakh crore from September 29, 2017 to January 5, 2018, reaching almost 96 per cent of the pre-demonetisation levels, the report said.

3. It said while the bulk deposit rates have recently seen an upward trend, the retail deposit rates continued to witness some cuts, albeit at a lower pace, with the median one-year deposit rate declining by only three basis points during January 2018, despite the 20 bps cut in various small saving schemes of the government effective from January 1.

4.The rating agency expects the incremental bank credit offtake to surge in the current quarter.
In order to support the same, the banks will need to mobilise additional deposits as the credit deposit ratio has increased to 74.6 per cent as on January 5, 2018, from the lows of 68.5 per cent in December 2016 and 73 per cent each at end of FY17 and the second quarter of FY18, ICRA said.

5. With the government announcing the bank-wise capital allocation during January 2018 under the PSB recapitalisation plan, the banks will have some clarity on the magnitude of capital they would received by March 2018, which would improve their ability to pursue credit growth and push up the credit deposit ratio.

(with inputs from PTI)