HDFC Bank hikes fixed deposit rates, loans set to get costlier too

MUMBAI: In a bid to grow its deposits, HDFC Bank has hiked interest rates on term deposits by up to 100 basis points (1 percentage point). Following the increase, the bank is offering a flat return of 7per cent on all maturities of over one year, while senior citizens can earn up to 7.5 per cent and bulk depositors (Rs 1 crore and above) get even more.

With a deposit base of 7.9 lakh crore, HDFC Bank has a marketshare of 7 per cent of the country’s bank deposits. SBI had increased deposit rates by up to 50bps in February. Other banks are also expected to hike their deposit rates. This is because deposit growth is not keeping pace with the expansion rate in credit.

According to data released by the Reserve Bank of India (RBI), bank deposits, as on March 30, 2018, stood at Rs 115 lakh crore — an increase of 6.7 per cent as against a growth rate of 15.3 per cent in the previous fiscal. Against this, bank advances grew 10.3 per cent to Rs 87 lakh crore, higher than 8.2 per cent in the previous fiscal.

An increase in deposit rates results in higher lending rates as well, since the marginal cost lending rate (MCLR) is now linked to the change in cost of funds. However, since the new rates will apply only on renewals, the transmission will be gradual.

One reason for the slowdown in bank deposits is the continued remonetisation as customers carry on withdrawing cash from banks more than a year after demonetisation. The increase in currency in circulation has resulted in a corresponding decline in bank deposits. As a result, surplus liquidity in the banking system is also vanishing. The pressure on interest rates is coming not just from shrinking liquidity but from the likelihood that the RBI will increase rates to control inflation.

HDFC Bank