NEW DELHI: In its monthly bulletin published on Tuesday, the Reserve Bank of India (RBI) stated that the growing competition among banks to boost their deposit base may compel banks to raise fixed deposit (FD)rates. Banks have been vying to raise deposit rates since the central bank raised the repo rate by 250 basis points (bps) in May 2022.
The RBI bulletin said, the majority of bank deposits accrued to term deposits as yields on term deposits improved and differentials with savings deposit rates widened in the most recent period. Term deposits saw growth of 13.2 percent year-on-year basis, while savings and current deposits grew at moderate rates of 4.6 percent and 7.3 percent, respectively.
After the RBI hiked the repo rate six times in a row, banks increased their interest rates on FDs across all investment horizons. Small finance banks offer competitive interest rates when compared to public sector banks. While the direct impact of the recent bank failures in the United States on economic activity may be limited, markets are preparing for tighter financial conditions that could present a trade-off between concerns about financial stability and monetary policy. According to data compiled by BankBazaar, the average interest rate of the top 10 banks is 7.5% for term deposits maturing in three years.
The future appears to be less bright than it did only a few weeks ago in early February, the RBI noted, alluding to the general global environment. "Yield curves are in deep inversion," it said.
The bank claimed that India has recovered from the pandemic years better than previously believed, with the services sector continuing to grow, the industries emerging from contraction, and the agriculture sector experiencing a seasonal increase.
Nonetheless, it expressed concern about continued price increases, stating that core inflation is continuing to defy the clearly easing of input costs while consumer price inflation is still strong.
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