Since the RBI deregulated savings bank deposit rates in October 2011, Yes Bank took the lead to shore up its portfolio with low-cost savings deposits by offering 6 percent interest rate, prompted by its lowest savings bank to total deposit ratio in the industry.
Other smaller banks like IndusInd Bank, Karnataka Bank and Sarawsat Bank amongst others followed the suit by hiking their deposit rates, to stay in the race by improving their respective CASA ratio, acquiring new clients and ramp up their retail operations.
Today, Yes Bank surprised with yet another round of hike in its savings deposit rates for resident and non-resident customers. The private sector lender raised its savings interest to 7%, from 6%, for domestic customers with immediate effect. For NRIs, a 200 basis points hike to 6% has been affected for deposits up to Rs.1 lakh.
However, the large banks like SBI, HDFC Bank, ICICI Bank and PNB have stayed muted on their decision to hike interest rates on savings account, since they’ve not witnessed any flight of capital. Thus, there are no free lunches for the majority of the depositors holding savings account in the country’s top ranking banks.
SBI’s chief general manager Rajeev Nandan denied any hike saying:
“We do not plan to change the rate. My personal view is that the Reserve Bank of India (RBI) will go for a pause in interest rate hikes. If RBI itself is expected to pause the rate hike cycle, then where is the question of hiking savings deposit rates?”
He further clarified that, “a 50 bps increase in the savings bank deposit rate will push up SBI’s costs by Rs.1500 crore.” However, he showed defensive approach in case other large banks in the country went for a savings deposit rate hike. Contrastingly, remaining large banks are waiting for a similar cue from SBI to take any lead on the issue. So, it’s a clear cat and a mouse game.
At the time of savings deposit rates deregulation, SBI had around 34% of its total deposits in savings bank account, while Yes Bank boasted of lowest savings deposit ratio in the industry at 1-2% of total deposits.
Banking analysts have indicated that, going forward; smaller banks operating on substantial rate differences would find some way to recuperate at least partial losses from such deposit rate hikes by way of imposing stiff penalty or pre conditions with respect to tenure or frequency of withdrawal of idle funds lying in the savings accounts.
Moreover, depositors also need to keep in mind that when the interest rate cycle turns its tide to downward trajectory, these smaller banks will be at no pain in rolling back interest rate hikes on savings deposits in line with lower cost of funds then.
But, certainly, we are witnessing a few tectonic shifts in the banking rate structure. Take this; interest rates on 6-month FD tenure offered by most banks today stands at 7.25%, and with smaller banks coming around to mingle at almost same rate with their savings deposit rates certainly sounds like a ‘teaser’, isn’t it?