Source : Why banks are raising FD rates sooner than expected
For a long time, banks had enough liquidity, but I guess things are slowly changing now.
Surplus liquidity in the banking system was around ₹11 lakh crore at one point. Now it’s down to nearly ₹1.53 lakh crore. Quite a difference!
Also, look at the gap between credit and deposit growth. Bank credit is growing at 18.2%, while deposits are growing at 16.7%. Basically, banks are lending more, but deposits aren’t growing at the same pace.
Banks need more deposits to keep growing their loan books. And you can imagine the kind of pressure this puts on sales employees to bring in deposits and meet their targets.
We’re already seeing banks increase FD rates. HDFC Bank has raised rates by up to 50 bps on select tenures, while Bank of India has increased them by 10–35 bps. PNB, ICICI Bank and a few others have also revised their rates.
(source)
Also, around $133 billion came in through the RBI’s special FCNR(B) deposit window, with ICICI Bank alone mobilising around $18 billion. This had helped banks earlier, but that liquidity support has since reduced…
For people investing in FDs, this is obviously good news. But for banks, higher FD rates also mean paying more to attract deposits, which could put pressure on their margins.
Wonder how long this will continue. If credit growth keeps running ahead of deposit growth, we might see more banks increasing FD rates.