Finance Minister announces 7.5 percent interest deposit scheme for women, puts pressure on banks to increase interest rates to attract depositors.
Finance Minister Nirmala Sitharaman recently announced the Mahila Samman Saving Certificate, a special deposit scheme for women that offers a 7.5 per cent annual interest rate on deposits of two years' duration. This move has put pressure on banks to increase the interest rates on their fixed deposit schemes in order to attract depositors. In light of the recent cash crunch faced by the banking sector to meet the growing demand for credit, banks may have to hike interest rates to maintain their cash flow.
The credit growth rate in the banking sector was recorded at 14.9 per cent in 2022, with banks giving out substantial loans. However, deposit growth only increased by 9.2 per cent. To keep up with the demand for credit, banks will have to increase interest rates on deposits or risk facing a cash crunch. Banks such as SBI, ICICI Bank, RBL Bank, Axis Bank, and IDFC First Bank have already decided to raise interest rates on deposits, although most still offer less than the 7.5 per cent interest rate offered by the Mahila Samman Saving Certificate.
Furthermore, the Finance Minister has doubled the investment limit in the deposit scheme for senior citizens from Rs 15 lakh to Rs 30 lakh, with an interest rate of 8 per cent per annum. This move has added to the pressure on banks to make their deposit schemes more attractive and increase interest rates to compete.
The RBI started the process of increasing the repo rate on May 4, 2022, leading to a 2.25% hike in five phases by the banks. The burden of this increase was put on customers; however, deposit rates were not raised accordingly. This has created an imbalance between the growth of credit and deposits, leading to the present cash crunch faced by the banking sector.
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