Fixed Deposit India

Scheme that doubles the initial amount from State Bank of Hyderabad

2011-11-08T02:26:00.000-08:00

The deregulation of the savings account rates has prompted the lenders to look for alternatives and innovations in order to attract customers to invest with them. In a similar effort State bank of Hyderabad has come up with a lucrative deposit scheme under which the deposited amount doubles itself in the shortest period of time.

Furthermore, the premature penalty gets waived if the customer wants to withdraw the deposited amount after a period of 60 months and even loan facility is available against the deposited amount. The scheme is available at all the branches of State Bank of Hyderabad with a minimum deposit amount of Rs. 10,000.

The deposit scheme yields 13.84% for general citizens and 14.56% for senior citizens.

Choose maturity period of fixed deposit scheme very carefully

2011-09-27T05:54:00.000-07:00

Deposit rates are the safest and most convenient mode of investment for commoners as there is not much risk involved in the investing money under fixed deposits. The only risk is when the bank defaults but even under such circumstances an investor can be sure to receive a return of up to Rs. 1 lac this much amount is insured and hence is default proof.

While making investments under fixed deposits an investor has various choices, there are various maturity periods available under which a person can invest. The interest rate offered at various maturity periods is different and generally for lower maturity periods it is higher.

Apart from that banks also offer special schemes under where for a special maturity period the interest rate offered is comparatively higher than the other corresponding maturity period. So, it is very important for an investor to choose the maturity period of his term deposit scheme after proper consideration in order to avail maximum benefits.

Earn maximum returns with your deposit scheme

2011-09-23T04:37:00.000-07:00

Fixed deposit was always a secure investment option but the surge in the deposit rates in the past few months has made it a preferred choice for people. They now can earn greater returns over their deposits but the benefits that an investor can earn can be maximized if he adopts a meticulous approach while opting for a deposit scheme.

The rate of return offered by banks may differ across different maturity periods and also from one bank to another. So, before a person invests under a scheme he must make sure that this the best rate that he can get over the given maturity period and for that he may have to do some research on the rates offered by various banks.

The tenure of deposit scheme must be chosen very carefully, if a person is sure that he will not require that amount for a certain period of time then only he must invest under this scheme as most of the banks have stated to levy penalty on the premature withdrawal of fixed deposits.

Following these simple instructions a person can earn maximum returns on his deposits.

Company deposits are also worth consideration

2011-09-15T04:34:00.000-07:00

Most of the people are aware about the fixed deposits offered by the banks but only a few are aware about the fact that even the companies offer this facility in order to raise money, it is because this concept is relatively newer to the Indian investors.

The most lucrative benefit that that the company deposits have over the term deposits is the rate of returns, an investor can earn considerably more with company deposits as compare to the latter, but with such investments risk is also involved.

Bank deposits are the safest mode of investment, even if the bank is unable to make payments in that case also The Deposit Insurance and Credit Guarantee Corporation provides assurance of returns of upto 1 lac while there is risk involved in investing with company deposit in case the corporate entity defaults.

If a person intends to invest with company deposits there are a few things that the investor must make sure which can help him to make safer investments. The fist thing that he must check is the credit worthiness of the company and its financial performance over the years and along with that the rate if return also needs to be checked.

A company offering unbelievable rate of returns must be avoided because risk may be higher with that company, the best way is to invest with well reputed and established companies which are offering reasonably good interest rate over the deposits and hence a person can earn higher than bank deposits.

Should you go for premature withdrawals of FD?

2011-09-14T05:02:00.000-07:00

It is high time particularly in context of fixed deposits, banks are offering higher interest rates on the term deposit schemes and hence it has evolved as an exciting investment option. People who hurried in to the idea of investing in to a deposit scheme may not look very happy with their decision.

The deposit rates are constantly rising for past few months and the ones who hurried may have lost probably the best chance to make the most of the rate hike. Earlier there was the option of premature withdrawals but now a great amount of risk is involved in case one opts for it.

Most of the banks have now started to levy a penalty of 1% in case an investor wants to go for premature withdrawal, it is also not a good option to keep sticking with the present scheme when better prospects are available and the person can avail more returns against what he is eligible for with his present deposit scheme.

a person can definitely can go for premature withdrawals but only when there is some other scheme where better rates are available and to analyze it a person can use deposit calculators that are easily available on internet and are easy to use.

The idea is to opt for maximum returns and if the new deposit scheme is not yielding much of benefits than a person must not go for it and in this condition waiting can be beneficial as there are still chances of rates going up, so he must keep looking for one.

This aspect of term deposits also need to be considered

2011-09-09T02:15:00.001-07:00

People are ecstatic about the rate hike in the fixed deposits, most of the things are in favor of this scheme which has contributed to its success, yet there are a few drawbacks which are associated with this scheme through none of them should be a cause of major concern for the investors but still it is important for a person to be aware about every aspect of this facility.

A term deposits scheme requires the investor to be patient as the more the tenure of the deposit the more investor would earn, also there are various other facilities like stocks, mutual funds that can yield comparatively higher returns in a very short period of time.

The safety feature of this scheme is what keeps the investors in high spirits which is lacking in all the other investment options. The other drawback with this scheme is tax deductions. The interest that the investor earns comes under taxable category and TDS is deducted from the total interest earned by the investor.

Deposit accounts at Post Offices

2011-09-08T04:06:00.001-07:00

The fixed deposits facility is not only offered by the banks but the reliable Post Offices also offers this facility known as Post Office Time Deposit. An investor has a choice to choose from a maturity periods of 1, 2 ,3 and 5 years.

The maximum deposit rate offered is 7.50% across the maturity period of 5 years. This facility can be availed at a minimum deposit of Rs. 200 and if a person has a savings account with the same post office then the interest earned and the maturity amount can be transferred directly to the savings account.

Like the bank fixed deposits a person can go for premature withdrawal of the deposited amount but under these circumstances penalty of 2% will be levied on the customer and also the account cannot be closed within 6 months of opening it.

In case the person has not withdrawn the amount even after the completion of the maturity period then after the completion of the maturity period the amount in the fixed deposit account will continue earning interest rate applicable on the savings bank account up to a duration of another 2 years, apart from this nomination facility is also available with this account.

As the Indian Post has an extensive network even in the rural parts of the country, the people in the remote areas can be benefitted with this service.

Consider every aspect while investing under fixed deposits

2011-09-07T04:28:00.000-07:00

Banks are offering high interest rates on the fixed deposit schemes and people are happily investing their savings under this scheme, which is rather very good because they now have the chance to expect maximum returns on the invested amount but make the most of the situation it is important that a person decides the maturity period very carefully.

As there is a lot of competition among the banks and to lure the customers they are introducing various attractive deposit schemes and as due to this reason people started to make premature withdrawals and started to invest the money with the bank offering higher interest rate.

To cope up the situation, most of the banks have started to levy penalty on premature withdrawals which has shackled an investor and so people has to stay content with what they have opted, despite the fact that there are far better schemes available for them.

To avoid such situation, it is important that a person takes a decision only after he has made sure that this tae best what he can avail at a certain point of time, apart from that while deciding the tenure of investment a person must evaluate his needs and if he does not require money for some time then only he must opt for longer tenure.

What the deposit schemes have for senior citizens?

2011-09-06T04:37:00.000-07:00

Fixed deposit schemes have become the preferred mode of investment for the common people, what has become the attractive feature of depose schemes is the surge in the deposit rates which promises considerably higher returns on the money invested.

Not only for the general citizens but the lenders are also concerned about the senior citizens, banks offer special deposit rates to senior citizens so that they can get maximum returns. They offer higher depose rates because the banks believe that the financial requirements are different for the people of different age groups and considering the age the senior citizens require a bit more financial attention.

So, the banks have developed special schemes for senior citizens that can prove useful to them and can serve the purpose and hence more and more senior citizens are availing this facility.

Hike in the deposit rates of Dhanlaxmi Bank

2011-08-17T04:47:00.000-07:00

Most of the leading banks have increased their lending as well as deposit rates after the hike of 50 basis points in the policy rates of the Reserve Bank of India, now it is Dhanlaxmi Bank that has increased its deposit rates across various maturity periods.

The bank has also introduced a new slab of 300 days that would attract an interest rate of 10.00%; also the lender is offering an extra interest rate of 0.50% to the senior citizens above the card rates but only on the maturity periods of 180 days and above (except on 300 days).

The revised deposit rates are applicable from 16^th August.

Hike in the deposit rates of Andhra Bank

2011-08-10T04:00:00.000-07:00

As the lending rates are soaring so are the deposit rates, people are facing difficulties due to continuous hike in the loan interest rates but at the same time banks are attracting more and more people to invest with them through the term deposit schemes by offering irresistible deposit rates.

Andhra Bank has also done the same and has announced a hike in the fixed deposit rates across various maturity periods like for tenure of 46 to 90 days the deposit rate has been increased from 5% to 6%. The hike in deposit rates is made in the range of 0.25% to 1.00%.

The revised rates are applicable from 8^th August.

Federal Bank hikes deposit rates

2011-06-08T05:34:00.000-07:00

The banks that were left behind are doing their bit to catch up with the market trend; most of the lenders have already updated their fixed deposit rates after the hike in the policy rates by Reserve Bank last month, now it is Federal Bank that has hiked its deposit rates.

Federal Bank has hiked the deposit rates across various maturities and is also offering extra 0.50 percent interest rates to the senior citizens.

The revised rates are applicable from June 07.

Deposits with Dhanlaxmi Bank to yield more

2011-06-03T04:52:00.001-07:00

Responding according to the requirement of market, private sector lender Dhanlaxmi Bank has hiked deposit rates across various maturities by a maximum of 50 basis points or 0.50 percent. The bank is also offering and extra 0.50 percent interest rates for the senior citizens.

"We have increased interest rates on select term deposits to offer more investment opportunities to our customers. The increase in deposit rates would help our customers to maximise returns on their savings,” said the Head of Branch Banking and NRI Businesses of Dhanlaxmi Bank.

After the revision the a deposit for a maturity period will attract an interest rate of 7.00 percent as compared to the earlier of 6.50 percent, interest rate for a maturity period of 366 to 499 days has also been increased to 9.00 percent from 8.60 percent.

The revised rates are applicable from June 6.

Loans on fixed deposits gaining popularity

2011-06-02T04:32:00.000-07:00

Since April 2010 loans against bank fixed deposits have scaled up by around 25 percent as recorded in April 2011 in accordance to the data compiled by Reserve Bank of India.

One of the driving factors behind such a sudden traffic in the stream is that that it is much less expensive as compared to the conventional loan schemes and not only that but it also shields them against the constant fluctuations in the market rates. The practice is gaining popularity and the figures under the section are expected to improve further.

A senior official from Union Bank of India said “The net outgo for the borrower is only 2 per cent in the case of loans against FDs. So, instead of breaking his FD, he could take a loan against it.”

Bank of India hikes deposit rates by up to 250 basis points

2011-06-01T05:58:00.000-07:00

Major public sector lender, Bank of India has hiked deposit rates across various maturities by a maximum of 250 basis points or 2.5 percent. Most of the leading banks have already revised their deposit rates, the revisions are a result of the hike in the policy rates from Reserve Bank of India.

After the hike in the deposit rates of the Bank of India, now the deposit for a maturity period of 15-30 days will attract an interest of 4.50 percent as compared to the 2.75 percent, similarly rates have been hiked across various other maturities that will allow the investors to earn more in their deposits.

The revised deposit rates are applicable form 1^st June.

YES Bank hikes deposit rates and Kotak Mahindra lending rates

2011-05-10T04:33:00.000-07:00

The hike in the policy rates from the Reserve Bank of India has triggered the banks to hike their lending and deposit rates. A lot of the leading banks have already announced hike in their deposit and lending rates and other are likely to do that very soon.

Private sector lender YES Bank has announced a revision in the deposit rates offered by it. The bank has hiked the deposit rates across various maturities maximum by 50 basis points. The revised rates are applicable form 9^th May.

Another private sector lender Kotak Mahindra Bank has hiked the BPLR and Base Rate both by 50 basis points. Due to the hike the loans will now cost more to the borrowers. The new rates are applicable from 10^thMay.

Lakshmi Vilas Bank hikes deposit rates

2011-05-09T04:52:00.000-07:00

Following the bellwethers in the banking sector, private sector lender Lakshmi Vilas Bank has also revised the deposit rates across various maturities.

The deposit rate for a maturity period of 46-90 days has been increase from 4.25 percent to 6.00 percent; a deposit with maturity period of 91-180 days will now fetch an interest rate of 9.00 percent. Increments have been made across several other maturity periods also.

The hike came post a 50 basis /point hike from the Reserve Bank of India in the policy rates. Te revised deposit rates are applicable from 9^th May.

Deposit rates likely to come down

2011-04-08T04:40:00.000-07:00

Lately the fixed deposit rates experienced a constant hike due to inflation but according to experts the deposit rates are likely to come down in the time to come. Few banks have already started to lower the deposit rates offered by them.

The Chairman and Managing Director of Bank of Baroda Mr. MD Mallya said "I think the deposit rates may come down. As far as lending rates are concerned, we will have to wait for the RBI policy before taking a call on it."

The Research Head at StanChart Mr. Samiran Chakrabarty said “Generally during the first half of the fiscal the credit demand is leaner and we are also seeing an easing of the liquidity situation. This, along with the fact, that towards the fiscal-end and April banks have incremental capital may be the reason for cut in rates."

The Reserve Bank of India is going to announce annual credit policy for 2011-12 on May 3 and is expected to hike the lending rates further by 25 basis points. Presently the short-term lending (repo) rate now stands at 6.75% and the borrowing (reverse repo) rate at 5.75%

Experts believe that the dip in the deposit rates is not likely to stay for a very long time.

NRE deposit rates hiked by SBT

2011-03-08T04:02:00.000-08:00

State Bank of Travancore has hiked the NRE deposit rates. The bank has brought the hike in interest rates across various maturities.

Following the revised rates the interest rate on a maturity period of one year to less than two months will be 2.54 percent, a maturity of two years to less than three years will attract an interest rate of 2.66 percent, and that for a maturity of three years to five years will fetch an interest rate of3.19 percent.

The bank as also hiked the FCNR deposit rates for deposits in dollars and Euros for various maturity periods.

The revised interest rates are effective from March 2.

OBC raises deposit rates over selected maturities

2011-03-07T03:50:00.000-08:00

Oriental Bank of Commerce has announced a raise in the fixed deposit interest rates over selected maturity periods by 50 basis points.

The bank has hiked interest rates on selected maturities of 1 year to 499 days and 501 to 2 years from 8.50 to 9.00 percent.

Most of the other leading banks have already raised their deposit rates after RBI hiked key lending rates by 50 basis points.

The new rates will be effective from 7^th March 2011.

City Union Bank offers online term deposits

2011-03-02T04:09:00.001-08:00

City Union Bank has started the introduction of more of modern technology to its banking system to expand its business and also to facilitate the customers. The bank customers will now be able to open deposit accounts online.

The Executive President of City Union Bank Dr. N Kamakodi said “The idea struck when I noticed that people by and large went for online booking of rail tickets. So, we decided to offer our entire gamut of services on the electronic platform, except for say, operating the locker, which obviously requires the physical presence of the account holder.”

The customers will be given option to transfer funds from their saving account to their deposit account. Apart from that the customers will be allowed to avail loans against those deposits.

He also said “The response has been phenomenal and quite unexpected, considering that we did not advertise about this offering. It was there on our site though. Within a week of its introduction, our online collection of term deposits swelled to about Rs 1 crore.”

The bank has also tied with the State Electricity Board, after the development the customers can pay their electricity bills online. According to the bank the practice is gaining popularity amongst customers.

Dr. Kamakodi said “We find that more and more people from rural pockets are now comfortably using Netbanking services,”

Dhanlaxmi Bank hikes deposit rates

2011-02-25T03:38:00.000-08:00

Private sector lender Dhanlaxmi Bank has announced a hike in the deposit rates across various maturities. The bank has hiked the deposit rates by a maximum of 3 percent.

The head of banks branch banking and NRI Businesses Mr. Salil Datar said "The hike in interest rates is in line with market trends and the emerging market interest rate scenario."

After the hike, the deposits for the maturity period 46 to 90 days will attract an interest of 9 percent and on deposit for maturity period of 91 to 179 days the customers will earn an interest rate of 8.75 percent compared to 7.25 percent.

Deposit rates expected to rise by 100 basis points this year

2011-02-11T03:49:00.000-08:00

According to a study conducted by Care Ratings, the banks in India might have to raise the fixed deposit rates by around 100 basis percent or 1 percent in the next one year.

According to the study “The banking sector has to garner 41 per cent more money in the form of new deposits in CY2011 than what they had done in CY2010 to maintain the credit growth momentum…..This would put upward pressure on the interest rates offered on deposits.”

The commodity prices and spending on infrastructure is expected to rise further this year and it will keep the banks under continuous pressure.

The agency also expects that to ease the liquidity situation the banking regulators might have to cut the cash-reserve ratio by more than 200-250 basis points.

Hike in deposit rates of Dhanlaxmi Bank

2011-02-03T03:45:00.000-08:00

Dhanlaxmi Bank , a leading South Indian private sector bank has announced a hike in fixed deposit rates. The bank raised the deposit rates by up to 50 basis points or 0.50 percent over various maturities on deposits between Rs 15 lacs to 1 crore.

Earlier the bank hiked the deposit rates on 20^th January 2011. A few other banks have already raised their deposit rates in reaction to the announcement of the tightening of the monetary policy by The Reserve Bank of India.

The new rates are in effect from today itself.

Banks to levy on premature withdrawal of F.D

2011-01-31T08:02:00.000-08:00

The banks are planning to impose fine on the premature withdrawal of the fixed deposits. Most of the banks are considering the proposal for implementation. Earlier there was no such penalty on premature withdrawal of the fixed deposits.

There are some public sector banks that have already started to levy on premature withdrawal but the private sector banks were tolerating the practice in order to attract more and more customers to invest with their bank.

For past few months the deposit rates are on a constant rise and that is why there has been a sudden rise in the premature withdrawal of the fixed deposits. Continuous migration of the investors is creating a lot of problem for the banks as such acts were putting unnecessary pressure on the liquidity position of the banks.

Hence, private sector banks have also started taking the situation very seriously . Pioneering the trend in the private sector bank HDFC Bank announced to levy 1 percent interest rate on premature withdrawals.

IDBI Bank also announced new guidelines for the same. The bank announced to impose 1 percent penalty on the withdrawal of the term deposit opened on or after 1 January 2011 however it gave relaxation to the customers that opened deposit account before January 1, 2011.
IDBI Bank said in a statement "Interest payable on prematurely withdrawn deposits will be the contracted rate or the rate applicable for which the deposit remained with the Bank, whichever is lower, less 1 per cent penalty."

South Indian Bank raises deposit rates

2011-01-25T03:24:00.001-08:00

The Thrissur based South Indian Bank has raised the deposit rates across various maturities. Earlier the bank revised the deposit rates on 4^th September last year.

Such a move was very much expected from the bank ,as all the other banks are consistently increasing their deposit rates in order to attract more and more customers so that their deposits could rise. Apart from this, the bank is offering an additional 0.50 interest rate to the senior citizens across all the maturities .

The new deposit rates are in effect from 24^th January.

Preclosure penalty on FD from HDFC

2011-01-19T02:40:00.001-08:00

Like other banks HDFC Bank has also decided to impose a penalty on the premature withdrawal of the money from the fixed deposit scheme. Earlier the bank did not used to impose any penalty for the purpose . Regarding the matter the issued a statement stating “As per the terms and conditions of fixed deposit accounts of the bank, the penalty on premature closure of FDs, including sweep-in and partial closures has been fixed by the bank at the rate of 1%. This will be applicable with effect from 24th January 2011.”

Most f the private sector banks impose a penalty on the premature withdrawal of money from the fixed deposit scheme on the other hand some banks like Axis Bank and IDBI Bank stand firm on their decision to not to impose any penalty on premature withdrawal.

Executive Director and CFO of Axis Bank Mr Somnath Sengupta said “We do not have any penalty for premature withdrawal . However, in case of premature withdrawal, the depositor will not get the interest for the original period but for the period the deposit has actually run,”

An official from HDFC Bank said that the customers that have invested in the Fixed Deposit scheme of the bank have a clear choice whether to continue with the investment with the bank or not as the amendment on the penalty will be applicable from 24^th January a day before the RBI announces the monetary policy for the third quarter.

RBI has provided customers the liberty to withdraw money before the fixed tenure however it is up to the bank if it wants to implement the penalty in premature withdrawal. According to the guidelines from RBI if the bank intends to impose penalty then the bank must make sure that the customer is made aware about the fact.

ING Vysya raises deposit rates

2011-01-18T04:50:00.001-08:00

ING Vysya Bank has announced increase in the deposit rates across various maturities. The rates are increased by a maximum of 1 percent.

According to the new deposit rates the customers will now earn an interest of 8.75 percent on the maturity of 501-729 days against 7.75. The maturity of 201-364 days will now earn 7.75 percent and the maturity of 365-499 days will earn 8.50 percent interest rate according to the revised deposit scheme.

There has been several other revivals in the interest rates across various maturities. The new deposit rates will be effective from 14^th January.

New deposit scheme from Union Bank of India

2011-01-17T04:16:00.001-08:00

Public sector lender Union Bank of India has announced the introduction of a new deposit scheme. The bank announced the new deposit scheme on Saturday will start will start accepting deposits under this scheme from today itself.

In the new deposit scheme the bank is offering an interest rate of 9.15 per cent per annum on a deposit of 1100 days.

Prior to that , the bank also introduced a deposit scheme for 700 days for in which the bank offers interest rate of 8.60 percent.

Deposit rates hiked by Bank of Maharashtra

2011-01-12T02:51:00.000-08:00

Bank of Maharashtra has revised fixed deposit rates for various maturities. Earlier the bank revised the deposit rates on 15^th December last year. The revision in the interest rates by the bank might be step from the bank to attract more people and to increase the deposits.

The bank has raised the interest rates ranging 25 to 75 basis points over various other maturities. According to an official , deposits under Mahalaxmi Term Deposit Scheme, for three-year period will get 8.60 per cent, an increase of 30 basis points.

The new interest rates came into enforcement from 10^th of December. The bank offers an additional interest of 0.50 percent on the maturity slabs from 91 days to less than a year and the interest rate has been raised from 0.50 to 0.75 for all the maturities above one year slab for senior citizens

Bank of Baroda revises Deposit Rates

2011-01-10T04:13:00.000-08:00

Like the other banks, Bank of Baroda has also raised the deposit rates across various maturities. The bank has raised the deposit rates in the range of 25 to 75 basis points.

Now, on a term deposit of 91-180 days the customers would earn interest of 6.25 percent raised from 5.50 percent earned earlier , similarly the term deposit for 181-270 days would fetch an interest rate of 7.00 percent compared to 6.25 percent. The bank has raised deposit rates on various other maturities.

Bank of Baroda last raised the fixed deposit rates on 10^th December 2010. The bank has made this move to attract more funds to tide over liquidity.

IOB revises deposit rates

2010-12-28T01:38:00.000-08:00

Indian Overseas Bank has raised deposit rates over various maturities. Earlier the bank revised the deposit rates on 13^th December, this is the second time in the month that the bank has raised fixed deposit rates.

The rate has been raised from 3 to 3.5 percent for a deposit of seven to seventeen days. That of 15 to 29 days has been raised 4.5% from 3.5%. for 91 to 120 days now the rate is 6% earlier it was 4.5%. a few more changes have also been amended in the interest rates by the bank. The bank is providing an extra of 0.75% to the senior citizens on all the term deposits.

BoI hikes interest rate of fixed deposit by 75 bps

2010-11-02T05:07:00.000-07:00

Bank of India, a public sector lender has raised its fixed deposit rates by up to 75 basis points for various maturities.

The revised rates have come into effect from 1 Nov, 2010.

The bank has revised rates ahead of the Reserve Bank’s second quarter policy review.

After revision, the interest rate for 91-179 days, will be higher by 75 basis points at 6.25 per cent for all deposits less than Rs one crore, BoI said in a filing to the Bombay Stock Exchange.

While, for deposits of 180-269 days the interest rate has been hiked by 50 basis points to 6.50 per cent.

For deposits between 270-364 days, the rate has been hiked by 75 basis points to 6.75 per cent and for all deposits for 1 year to less than two years, the rates has been raised by 50 basis points to 7.5 per cent.

Indian Bank hikes deposit rates and base rate

2010-10-04T03:54:00.000-07:00

Indian Bank has hiked its deposit rates and base rate. The deposit rates have been raised by 50 to 75 basis points on shorter maturities while base rate has been raised to 8.5%.

Bank Chairman and Managing Director TM Bhasin informed in August the bank had raised rates for deposits above two years to 7.75 percent.

According to bank release, the hike in interest rates has not been done for agricultural sector under interest subvention scheme and the Bank’s special schemes under poultry and fisheries.

It added even loans to micro industries have also been exempted partially.

Allahabad Bank revises interest rate for 500 days tenure

2010-09-27T04:23:00.000-07:00

Allahabad Bank, a public sector bank has revised its domestic term deposit interest rates. The rates have been revised of below Rs 1crore and will be effective from 27 September, 2010. For 500 days tenure the interest rate will be 7.50 per cent per annum. The interest rates of the remaining tenures have not been changed. The revised rate will be applicable for fresh deposits and renewal of deposits.

Kotak Mahindra Bank raises deposit rates by 0.25%

2010-09-23T00:02:00.000-07:00

Last week again, RBI has raised its short-term lending rate (the repo rate) by 25 basis points and borrowing rate (reverse repo) by 50 basis points, as a result banks will again raise fixed deposit rates also lending rates. But banks plan to revise rates in October.

Kotak Mahindra Bank, a private sector banks has taken lead in raising its fixed deposit rates. On Tuesday bank increased the term deposit rates by 0.25%. On the other hand, on Monday Yes Bank raised its benchmark prime lending rate (BPLR) by 50 basis points to 17.5%.

Kotak Bank has revised its rates for all tenures with maturities of 1 year and above with immediate effect.

KVS Manian, group head Kotak Mahindra Bank told FE, “Our deposit rate hike only reflects the upwards interest rate bias in the market. However, we have not yet decided on hiking the lending rates. We may revise our BPLR and base rate both in the early October this year.”

Bank reported credit and deposit growth at more than 30% year-on-year basis. After revised rates for one year term deposit the interest rate is 7.25% while for five years and above, the rate of interest is 7.75%.

MF houses launch new FMPs, offer high interest rate than bank FD

2010-09-20T05:20:00.001-07:00

With rising bank deposit rates, mutual fund houses are also making a beeline to attract investors by offering new fixed maturity plan (FMP). In the past 15 days, companies such as Tata Mutual Fund, Birla Sun Life Mutual Fund, Taurus Mutual Fund and IDFC Mutual Fund have been opened for subscription of eight new FMPs.

Almost all mutual fund companies have launched fixed-term plans of varying maturities ranging between 91 days to 1-year tenure.

Fund houses provide options of different maturity periods to the investors so that they can park their money depending on their requirement for capital.

Fixed term plans invest in debt securities in which the returns are locked in the beginning of the plan so the interest rate risk is reduced by a good measure.

According to fund managers present levels are good for investment in fixed-term funds.

FMPs have two features one is FMPs offer slightly higher returns than bank fixed deposits (FDs) and are not unstable as equities.

Naval Bir Kumar, managing director of IDFC Asset Management Company said, “This is a good time to invest in fixed maturity plans as the interest rates are high. If rates keep moving up, we will launch new plans.”

Short-term yield on debt instruments such as commercial paper is between 7 and 8 per cent.

If we calculate the gross yield, after deducting asset management expenses, the gross yield can be anywhere between 6.5 and 7.25%. Fund managers cannot give indicative returns on fixed-term portfolios.

As per latest hike fixed maturity plans for 90 days can offer returns upwards of 6 per cent, while fixed deposit for 90 days tenure are offering 4 per cent interest.

Returns gained in FMPs depend on portfolio construction and in which instrument(s) money has been invested.

Alok Singh, head (fixed income) of Fortis Mutual Fund said, “Fixed-term plans become attractive when short-term rates move up. FMPs though come with a rider of no liquidation. Unlike open-ended funds where investors can go for redemption, money in FMPs is locked up for the tenure of fund. Investors who have three months to one-year investment horizon can earn high yields at maturity in a FMP.”

RBI report says, increase in bank deposits by 14.44 per cent

2010-09-10T03:32:00.000-07:00

As per data available, by fortnight ended August 27, there was increase in bank fixed deposits by Rs 38,658 crore as against a decline of around Rs 8,000 in the previous fortnight, which shows recent raise in deposit rates by banks have succeeded in attracting the customers.

As per the Reserve Bank of India (RBI), latest data, there has been an increase of 14.44 per cent on a year-on-year basis, in bank deposits.

RBI in first quarter monetary policy review had asked banks to improve deposit growth therefore, banks started raising rates. Most banks have raised rates of short- and medium-term fixed deposit by up to 150 basis points.

In its policy review, RBI has projected 18 per cent deposit growth for 2010-11 but deposit growth has not exceeded 15 percent in this financial year.

During the fortnight bank credit had come down by Rs 13,114 crore. At the end of fortnight bank credit had increased by 19.4 percent on a year-on-year basis. And the outstanding bank credit was reported to be at Rs 33,51,396, against Rs 28,06,741 crore at the end of the previous fortnight.

Bankers are expecting modest credit demand in the current quarter. However, there has been increase in demand during the first quarter of the financial year, mainly because there was huge demand from telecom companies for 3G and broadband wireless access.

A senior public sector executive said, “Credit flow may not have happened from the banking system but corporate have availed of the alternate sources. They have raised funds from other routes like commercial papers (CPs) and mutual fund.”

Moreover, last month profits on CPs touched to one-year high as banking system had shifted to base rates as corporates had no means to raise short-term capital.

A senior executive of another public sector bank, “Demand for credit is not robust. We had expected a moderate credit growth in this quarter. With funds flowing from other sources to the commercial sector, demand from banking will be slow for some more time.”

Although for the current financial year the apex bank has projected 20% growth in credit.

Number of banks has also raised their benchmark prime lending rates (BPLR) in order to encourage more customers to move to the base rate system. The base rate system was introduced from July 1. Till now, the borrowers have not shifted to base rate system.

Thus, during fortnight there has been increase in deposit growth and drop in credit growth, banks’ investment in government securities has also moved up by Rs 23,674 crore.

What is a fixed maturity plan?

2010-09-09T04:49:00.000-07:00

Fixed maturity plans, or FMPs are investment schemes floated by mutual funds. Similarly to bank fixed deposit (FD), FMPs have different maturities like three months, six months, one and two years and rarely for three years.

FMPs are invested in instruments of matching maturity therefore investors get a rough idea how much returns he will earn at the time of subscription. There is a lock-in-period therefore investors get protection against interest-rate risks.

Moreover, on FMPs with a maturity of over one year investors get tax advantage over fixed deposits. In FMPs, investors get an option to pay tax on long-term capital gains at 10% without applying indexation or 20% after applying indexation to the cost of acquisition.

On the other hand, investor has to pay tax on interest earned from FDs according to his tax bracket. But, FMPs don’t offer assured return or capital protection, as investor get in bank FDs.

Before investing in FMPs there are few things which should be taken into consideration. Two years ago, during the economic crisis many fund houses got into trouble as they had invested in low-rated papers from dubious companies, mainly in the real estate, so it becomes very important to check the reputation of the fund houses. However, fund houses managed to come out safely from the terrible situation as the regulator intervened in the matter and led a helping hand to them.

These days’ investing in FMPs is risky as you will neither have an indicative portfolio nor return so everything will depend on the integrity of fund houses.

Generally an investor should not exit till FMPs get mature, but fund houses now days list FMP on stock exchanges so that investors can easily exit if they are in urgent need of money. In this there is no guarantee of enough liquidity and get good value.

Therefore, investment in FMPs should be made only when you are prepared to take a little risk to earn bigger tax- efficient returns.

No investors for higher rate FDs

2010-08-26T03:18:00.000-07:00

After the Reserve Bank of India raised its key rates on July 27 the banks started raising their fixed deposit rates but in the 15 days to August 13 there has been no improvement in the growth of the deposits.

According to RBI data deposit growth has declined by Rs Rs 8,016 crore in the fortnight to August 13 to a total outstanding of Rs 46,39,595 crore, translating into a year-on-year growth of 14.1 per cent.

RBI in its monetary policy meeting with bankers had expressed its concern over low deposit growth and had told banks to improve their deposit mobilization to avoid any asset-liability mismatch as a result, banks getting signal from RBI raised interest rates on short-and medium-term fixed deposits by as much as 1.5 per cent.

Although, in the 15 days ended August 13 after a temporary decline last fortnight bank credit growth has moved up to 20 per cent mark.

As per RBI data, banks have witnessed credit growth of 20.13 per cent on year-on-year basis at the end of the fortnight. Thus, outstanding bank credit amounts to Rs 33,57,265.34, as against Rs 28,05,224.26 crore at the end of the previous fortnight.

However in the first quarter of the financial year banks credit growth had spiked when telecom firms demanded for the 3G and Broadband Wireless Access spectrum auctions. But bankers are hoping of moderate credit growth in the current quarter. The apex bank had predicted 20 per cent growth in credit for the current financial year.

Many banks have increased their benchmark prime lending rates with an aim to persuade more customers to switch to base rate system. From July 1 banks have introduced base rate system, but till now the customers have not switched to base rate.

Floating rate FD not beneficial for senior citizens

2010-08-20T03:47:00.000-07:00

For most of the senior citizens fixed deposit is the most preferred investment instrument as they give assured returns. But banks are launching new floating interest rate regime for fixed deposits and country’s largest lender has taken lead in this by launching the floating rate fixed deposits.

Investing in floating rate fixed deposits might not be as beneficial as the usual fixed deposits. The floating rate FDs return will be linked to the base rate. In India the interest rate scenario is very unstable the rates are revised quarterly or half yearly.

SB Mathur, former chairman of public life insurer Life Insurance Corporation says, “Retired people do not need uncertainty but certainty. It doesn’t matter if returns are a little lesser all they require is assured returns.” He added senior citizens will have difficulty in planning their future income in the floating products regime.

Senior citizens look for risk-free assured returns and easy liquidity in FDs. But the new regime of interest rate will bring in risk factor as returns will be based on base rate, which will change according to RBI’s policy rates, macro-conditions and banks’ other statutory fund costs that could fluctuate nearly every quarter.

From July 1, the base rate system has been introduced under which the banks cannot lend below the base rate. In order to ease the risk, SBI has come up with base fate fixed deposit schemes, which will slowly gain momentum in the coming days, according to bankers.

Allen Pereira, CMD of Bank of Maharashtra points out, “As long as these products are optional, it’s fine. Consumers should have the maturity to choose what they want.”

Union Bank CMD MV Nair said, “People will have to learn to live on market-driven returns unlike the current scenario of assured returns. Since the base rate is linked to inflation, it’s a double-edged sword. Income may go up if prices firm up. But there are chances that they may go down if prices start easing.”

However in all the developed markets, the returns on FDs are linked to the market but in India it is just in initial stage, an optional proposition. If this product is able to make a good start probably the plans with assured returns may be driven out, informed an anonymous senior banker.

“Fixed-rate returns may become history over the next few years as banks are likely to focus more on market-linked deposit rates to reduce the risk of asset-liability mismatch,” he said.

In the Indian domestic market the total deposits in banks account to Rs 46 lakh crore, out of which 65-70% comprises fixed deposits, as per industry estimates.

Currently, total deposit in banks in the domestic market stands at Rs 46 lakh crore, of which 65-70% comprises fixed deposits, as per industry estimates.

People investing in bank FDs, company deposit schemes

2010-08-19T00:16:00.000-07:00

In the past most people preferred to invest in equity market for long term gain but it as been around two years that there has been instability in the equity market which has forced investors to look for safer investment instruments such as fixed deposits. Fixed deposits provide guaranteed safety of money but the returns are lower. Again the interest rates on fixed deposit are rising after the Reserve Bank of India tightened policy rates and banks are raising rates on fixed deposit schemes to garner more low-cost retail deposits.

Most of the big commercial banks such as SBI, ICICI Bank, Axis Bank, HDFC Bank, etc have raised rates on fixed deposits by 50 to 75 basis points. According to marker experts the rates are expected to rise further as liquidity gets tighter and credit growth picks up.

Even the leading non-banking finance companies (NBFCs), such as Shriram Finance and Dewan Housing Finance Company, have also started raising retail fixed deposits interest rates – up to 2 per cent higher than rates offered by banks. Shriram Transport’s fixed deposit scheme, called Shriram Unnati Fixed Deposit, is offering 8.75 per cent per annum interest for a year. Minimum investment requirement under this scheme is Rs 25,000 and the last date of scheme is August 31. Another company Dewan Housing is offering 9 per cent interest on fixed deposits of 1-year tenure.

While most of the banks are offering 5.5 per cent of interest for 3 to 6 months, 6.5 per cent on deposits for 6 months to 1 year and 7.25 per cent for above 1 year.

NS Srinath, executive director (retail) at Bank of Baroda, told Financial Chronicle that the interest rates will move up further. He said, “I see interest rates stabilizing at this level or go up a little. A fixed deposit is definitely a good investment instrument in the short and medium terms. With the volatility in the equity market, fixed deposits in the range of one year is a good bet. It is little premature to say if interest rate hike has led to growth in our deposits. But we have a target of 22 per cent year-on-year growth in deposits.”

According to wealth adviser and certified financial planner, Gaurav Mashruwala, except FD there is no other investment instrument that can give you guaranteed returns. He said, “Equity investment is risky in the short term, but it offers good gains in long run. While FD is a safe bet for short term, there is no return in the longer term.”

Mashruwala say FD is the best investment option for investors in the low or middle tax brackets, mainly falling in the 10 to 20 per cent brackets.

Kartik Jhaveri, a certified financial planner said corporate fixed deposits are safe and very little risk is involved in them also most of the companies are offering good rates.

Financial experts say deposit rates can rise further so don’t invest in long term FDs

2010-08-17T04:34:00.000-07:00

Banks are raising their lending rates and fixed deposit rates since the time when RBI raised repo and reverse repo rates. Till now most of the banks especially the big commercial banks have raised their loan and fixed deposit rates, the increase by SBI is quite sharp.

After a long period investors in fixed deposits (FDs) will feel happy seeing the rates moving up. But market experts caution the investors in FDs that they should not hurry to invest in FDs aggressively it is just the beginning.

For instance, HDFC Bank has raised rates for 1year and 2 year deposits by 25 basis points to 7.5 per cent and 7 per cent, respectively. Bank has done the biggest rise for 6 months tenure, by 75 basis points.

The SBI has raised its rates between 25 and 150 basis points. The bank has done the biggest rise for the 15-45 day tenure, the rates has been increased from 2.50 per cent to 4 per cent i.e. by 150 basis points.

For 1 year to less than 2 years bank has raised rates by 125 basis points- from 6 to 7.25 per cent. For 181 days to less than a year, the rate has been raised from 5.25 per cent to 6 per cent.

According to financial planners the rate war can get hotter. Govind Pathak, director, Acorn Wealth says, “Don’t invest in FDs of more than one year. Also, don’t invest the entire holding in a single FD.”

He said one can divide large amount into small portions. For instance, Rs 1 lakh can be divided into four deposits of Rs 25,000 each. If the interest rates increase in, say, the next quarter, then you can withdraw the money from two deposits and invest in other higher-paying FDs.

Along with deposit rates the lending rates are also rising. The market experts say banks are reluctantly hiking lending rates because the retail lending has not taken off. According to many the teaser rates can sooner or later be withdrawn.

Currently, SBI is offering a teaser rate of 8% for the first year and 9% for second and third years. After that, the rate will be linked to the base rate. Likewise HDFC is also offering teaser rate at 8.25% in the first year and 9.25% in the second year. Then, the rate will be linked to the retail prime lending rate.

The experts caution home buyers that they should not rush for teaser rates, especially for buying an under construction property. Kartik Jhaveri, director, Transcend India said, “Potential home buyers need not rush to take that home loan, whether it’s a teaser rate or not, simply because it is a 15-20 year decision.”

He says if one plan to buy ready to possess property then going for teaser rates is good idea but for under-construction property a teaser rate scheme is not a good idea as EMI or interest payment of loan will start now. When the loan is disbursed entirely in the next two-three years, the teaser rate might no longer apply.

Jhaveri adds, “You will be stuck with the conditions of the teaser rate scheme that may be adverse compared to the base rate regime.”

SBI has launched a new product – floating rate term deposit linked to the base rate- according to market experts it is a novel idea. But they differ on the point whether retail investors should get into these products or not. Suresh Sadagopan, a certified financial planner says, “The basic reason for investing in a fixed deposit is assured returns. Any product that does not give assured returns is not meant for small investors.”

According to Pathak, director, Acorn Wealth, one can go for this product but only for one or two years. He explains, as interest rates are rising for some time therefore it makes sense to be in these products. Pathak says, “In a falling-rate regime, these may not make much sense.”

SBI under its new scheme is offering a floating rate of 7, 7.25 and 7.5 per cent for 1, 2 and 3 years, respectively. While Housing Development Finance Corporation has two such products- a regular product for individuals and a systematic savings plan.

SBI is offering 6.9-8.25 per cent for different tenures. The HDFC had launched the scheme 6 months back which allows people to invest in parts, just like a recurring deposit. Thus you can invest as little as Rs 2,000 to as much as Rs 50,000 for 24 to 60 months. The rates vary from 7.25 to eight per cent (two-five years). Last year Indian Overseas Bank also introduced similar product.

Some banks asking to open fixed deposit to be eligible for credit card

2010-08-12T05:36:00.000-07:00

After global financial crisis the banks have cut down their credit card portfolios. Now they prefer to issue credit card to people with sound and high income. Some banks have made a new rule that people who earn less than Rs 30,000 a month can not apply for credit card. Moreover they want some “sound” previous relationship before considering the card application.

Two years ago the bank agents used to chase people to sell credit cards and the cards were given free for lifetime. Now banks are charging range of fees, including for joining and annual maintenance.

An HSBC Bank official told Business Line told, “We are issuing cards on a selective basis as it is an unsecured portfolio.”

ICICI Bank is also going slow on cards, with just about five million in circulation now compared with nine million two years ago.

ICICI Bank says, “ICICI Bank issues cards to both customers and non-customers, subject to fulfillment of credit appraisal norms. We have a full suite of cards products, one of which is a Secured Card (which is for customers with an FD).”

The banks are following this trend because all credit card issuing banks had faced defaults when there was slowdown in country economy. Since then banks started picking out a number of defaulting cards.

According to RBI figures, as on May 2010 the number of credit cards in circulation was 19 million low as against peak of 27 million in June 2008.

A senior banker said, “Now, for many banks, it is more a question of being in the card segment rather than making profits.”

IDBI Bank raised BPLR and term deposit rates

2010-08-05T04:30:00.000-07:00

IDBI Bank, a state-owned lender has raised its benchmark prime lending rates.

It has revised its BPLR by 50 basis points and it will be effective from 5 August, 2010.

The bank release said, the interest rates on retail term deposits have also been raised by 25-75 basis points on different tenures. The revised rates will be effective from August 6.

HDFC, Central Bank, Allahabad bank raised deposit rates

2010-08-03T04:28:00.000-07:00

The Reserve of Bank has raised policy rates therefore banks have started raising deposit rates ranging from 25 to 75 basis points.

HDFC Bank has raised deposit rates by 75 basis points with effect from July 30, the Central Bank of India has raised rates by 50 basis points which have come into effect from August 1.

Other banks that have raised their deposit rates include Lakshmi Vilas Bank and Allahabad Bank by 50 basis points, effective from August 1.

One (1) basis point is equivalent 0.01 percentage point. State Bank of India (SBI) will be raising its deposit rates by about 0.25 per cent in August-September.

HDFC Bank has raised rates of 91 days and 6 months deposits to 5.25 per cent from 4.5 per cent, for tenors of 9 months to 1 year the rates have been revised to 6.5 per cent as against 5.75per cent.

In the coming days more banks are likely to raise their deposit rates. As the banks have started raising deposit rates therefore their cost of funds will also increase as a result the banks will raise lending rates also. Meanwhile, most of the banks are not willing to raise lending rates due to comfortable liquidity but when the credit offtake starts picking up, banks will hike lending rates in home loan, auto and commercial loan segments.

There have been indications that HDFC Bank, the mortgage major might hike the second year lending (fixed) rate by 25 basis points to 9.25 per cent. At present it is offering housing loans at 8.25 per cent fixed rate for the first year (up to March 2011) and second year at 9.0 per cent.

SBI Chairman O P Bhatt told reporters, “There is an upward bias on deposit rates. They should move up by August-September by at least 0.25 per cent.” On the other hand RBI Governor D Subbarao had said after raising short-term lending (repo) and borrowing (reverse repo) rates by 0.25 and 0.50 per cent respectively, “We expect credit to be dearer ... As credit demand picks up, we expect lending and deposit rates to go up.”

Central Bank of India Chairman & Managing Director S Sridhar said “We have lost business for not lending below the base rate of 8.0 per cent, which we were doing it earlier.” Responding to a question, he said, “As of now high cost deposit with us is zero. We have gradually reduced it over a period. We could have mobilized high cost deposits of up to Rs 5000 crore recently, which we have lost to other banks.”

Private lenders to hike deposit rates in coming months

2010-07-09T06:03:00.000-07:00

Few days back the Reserve Bank of India (RBI) raised its key policy rates as a result private sector banks are in the process of gearing up for a deposit rate hike.

Private banking sources said, most likely the private banks in the coming months will be hiking deposit rates before switching to base rate system for lending.

Moreover by raising deposit rates these banks will be able to mobilize their funds in more efficiently to meet the credit demands in the system, burdened with liquidity crunch.

Ashish Parthasarathy, treasurer at HDFC Bank pointed out, “After the recent hike, RBI is expected to increase both repo and reverse repo once again by 25-50 basis points in the next monetary policy. Banks are expected to raise their deposit rates soon.” He added, the hike in deposit rates will help the banks in achieving their deposit growth target.

In the past few months, the banks have witnessed decline in the growth of deposits. For the fortnight ended June 18 banks deposits rose up to 13.92%, as against 14.34% y-o-y in the previous fortnight.

PC John, executive director, Federal Bank said, “Our asset liability committee will review the interest rate situation in its July meeting. We are also keeping a close watch on what other private banks are doing to stay competitive”.

RVS Sridhar, president & head markets (treasury), Axis Bank, said, “Banks will increase deposit rates depending on their fund requirements for credit offtake. The system is currently going through a liquidity crunch.”

Benefits of Senior Citizen Savings Scheme

2010-07-08T00:31:00.000-07:00

In the second half of 2004, the five-year Senior Citizen Savings Scheme (SCSS), was launched. This scheme became a big hit as it offered higher returns.

Now, most of the investor’s schemes who had invested in the initial time period will be maturing in the coming days. Thus it becomes important to relook at these schemes before thinking of reinvesting in them.

On this scheme the rate of interest offered is 9%, which is quite high, in comparison to the existing rates. This return is paid to the investor every quarter. As for the high rate of interest, there is no other scheme for senior citizens offering such high interest rate.

For instance, on the bank fixed deposit for long tenure the interest rate is offered in the range of 7-7.5%. Therefore, it will be better to invest in the same scheme.

In this scheme the initial investment is done for a period of five years, thereafter it can be extended only for three year. And for extension a form has to be filled in the respective bank or post office where the investment has been done.

The other benefits of the scheme are – along with high returns and safety of money, there is a tax benefit. The investment of up to Rs 1 lakh is eligible for a deduction under section 80C of the Income Tax Act.

But in the recent revised Direct Tax Code it has not been clarified that, this benefit will continue or not. Investors should contact their respective bank or post office to get clarification on this, in order to continue getting the tax advantage.

The senior citizens who are of 65 years and above should invest the maximum possible amount in this scheme, because they come in the highest tax bracket, and if the returns from this instrument do not exceed their basic exemption limit of Rs 2.4 lakh, they can earn tax-free returns.

This scheme has one major negative aspect. It lacks liquidity. In this scheme investors cannot withdraw, when they wish to. In old age, people might need sudden influx of cash for medical or other needs, but they cannot withdraw before maturity of the scheme. Moreover, in this scheme transfer facility is not available.

There are few schemes that offer protection as well as high returns for individuals. So till the initial Rs 15 lakh limit per person is utilized by the individual, it is a good choice.

But, for people who have a higher amount for investment, this scheme is not adequate from investment point of view as well as for generating higher returns.

The other debt options have some point which makes a choice difficult for the senior citizen. For example the monthly income scheme of the post office has a maximum investment limit of Rs 4.5 lakh for a single individual.

In monthly income plan of a mutual fund there is no guarantee of any return. And, if the conditions are not favorable as are now, then, there might not even be any payout. Other bonds and debentures will not ensure a regular cash flow that meets a senior citizen's needs.

In comparison to these alternatives, SCSS is best to earn regular return.

Deposits likely to rise due to rise in repo rate

2010-07-05T08:29:00.000-07:00

The Reserve Bank of India (RBI) has raised its key policy rates it is expected that it might bring cheers to depositors.

It is believed the increase in the repo rate is likely to raise corporate bulk deposit rates. In June bulk deposit rates had risen as much as 125 basis points, better than retail deposit rates, but it was temporary because of outflow of money from the system due to advance tax and 3G auction payments.

According to bankers due to rise in repo rate, increase in bulk deposit rates will be more permanent. T Y Prabhu, chairman and managing director of Oriental Bank of Commerce pointed out, “As a result, both short-term borrowing and short-term lending will become expensive.”

According to M D Mallya, chairman and managing director of Bank of Baroda hike in repo rates by RBI might not prompt any immediate increase in lending rates. “AN Increase in deposit rates may be a possibility”.

On the other hand SBI Chairman O P Bhatt had said that bank might think on raising deposit rates after the first quarter review of the monetary policy on July 27. The RBI had clarified that it want rise in interest rates to tackle rising prices and to give better returns to savers. RBI Deputy Governor K C Chakrabarty said on Friday, “We have to give better return to savers. The credit growth is higher, inflation is picking up, and so we have to curtail credit demand.”

According to RBI report between April 1 and June 18, banks were able to raise Rs 24,715 crore deposits which was below than the comparable period of last year, which was Rs 1, 31, 354 crore.

By June end banks deposit growth was 13.9 per cent which is much less than the RBI’s projected 18% growth, in spite of deposit growth in 12 months.

Corporates investors prefer FMP, banks to re-look at fixed deposit schemes

2010-06-28T06:24:00.000-07:00

Most of the corporates prefer investing in fixed maturity plans (FMP), offered by mutual fund houses as these provide maturity at shorter terms while offering competitive profits. Therefore banks have started re-looking at fixed deposit schemes offered by them.

Recently Religare Mutual Fund, Fidelty Mutual Fund, HDFC Mutual Fund and Axis Mutual Fund have launched fixed maturity plans with maturity periods ranging from 90 days to 370 days.

According to Asit Pal, executive director of the Corporation Bank, “Definitely we will have a re-look at the performance of fixed deposits against fixed maturity plans. But we also need to get a clear picture about the market share of FMPs.”

He added, “Fixed deposit schemes have performed better last year. Although it was little dampened on the retail side, performance of high value clients investing in FDs was quite good.”

However, FMPs are favorites with corporate investors due to shorter maturity periods. But a section of corporate investors do prefer fixed deposits for better returns. Nilanjan Dey, Wishlist Capital Advisors said, “Corporate investors look for convenience in investments. So it has a chance to become popular again this time,”

Debjiban Basu, general manager (treasury, international banking & accounts) of United Bank of India, say corporates main concern is of liquidity. “If they are looking for easy liquidity and some interest then fixed deposits are better instruments for them. There is an upward trend of the yield in the market. Moreover, corporates are also looking at minimizing their MTM losses.”

Salil Datar, head (branch banking) of Dhanlaxmi Bank, points out corporates mostly prefer short-term FMPs with a maturity of about 90 days. He said, “Suppose an FMP offers a yield of 6-6.3% on a 90 days maturity period, its post-tax return will be around 4.8-4.9%. For a fixed deposit of similar tenure with an estimated yield of 5-5.5%, post tax return is around 3.6%. So for shorter term FMPs are a favorite with corporate investors.”

He added, “But I do not think corporates will be much interested in FMPs with maturity period as long as 370 days. Fixed deposits have an edge over FMPs there.”

D Sarkar, executive director of Allahabad Bank, stated, “We might consider increasing yield on the fixed deposits by 25-50 basis points. But that is not with an intention to compete with FMPs.”

You get option in tax-saving FDs

2010-06-24T02:44:00.000-07:00

The government has revised discussion paper (RDP) on the direct taxes code (DTC) after it got pressure from all section of people. The discussion paper contained some provisions especially related to the proposed exempt-exempt-taxed (EET) method of taxation that will provide relief to taxpayers.

Here we will discuss in brief about EET. EET is a tax system in which an investment in a tax-saving plan and interest earned on it is deductible from income. The maturity amount is also taxable. While in the current EEE system no tax is charged on investment, interest and the maturity amount. But in the new provision the Public Provident Fund (PPF) and company provident fund (PF) balances has been brought under EET method of taxation. Due to which there is major apprehension and anxiety among taxpayers. Though DTC had provided for a grandfathering clause, it was deemed woefully inadequate.

According to the original provisions of the DTC, on the withdrawal of any amount of accumulated balance in PPF/PF as on March 31, 2011 people don’t have to pay tax. But, in new contributions as well as on accumulation on or after the commencement of the DTC (April 1, 2011) will be subjected to the EET method of taxation. And everyone knows that as per rules no one can withdraw entire PPF balance at one go from its account except on maturity. Thus for most investors, only a part will be tax-free, while on all interest and accumulations post March 31, 2011 tax have to paid upon withdrawal or maturity.

Now in RDP it has been stated that PPF and PF will remain tax-free even under the new DTC. Moreover, any investments made before the date of commencement of the DTC, in instruments which comes under EEE method of taxation as per the current law will continue for the full duration of the financial instrument. This is the main point of worry for the investors.

Banks might hike fixed deposit rates by Sept

2010-06-08T04:11:00.000-07:00

According to the Reserve Bank of India's (RBI) latest report the total deposits of banks have dipped by Rs. 4,997.08 crore to Rs 45,26,220.20 crore as on May 21, 2010 as compared to Rs 45,31,217.28 crore registered on May 7, 2010. The RBI estimation takes into account the resources needed to meet credit offtake by the private sector and government borrowings along with growth and inflation outlook.

However experts believe the decline may end soon. Indraneel Sen Gupta, economist in BoA Merrill Lynch, says, “We expect a bottoming out by September (and the figure could touch) to 18.2% by March 2011.”

According to Mridul Saggar, chief economist, Kotak Securities, at present bank deposits growth is below comfort levels. Referring to the RBI projection made during the annual monetary policy review, Saggar said, “If this continues, the full-year target of 18% won’t be reached.”

Moreover the government borrowings are high this year, credit growth is also expected to be higher than last year at 20%.

“Interest rates on deposits are too low now and in some time banks would have to consider their sources of funds and take a decision on deposit rates so that they are in a position to meet credit growth targets,” said Saggar.

Thus Sen Gupta believes banks will be hiking deposit rates by September.

OP Bhatt, chairman and managing director, State Bank of India,India’s largest commercial bank, said that banks will hike their deposit rates because banks will need money to meet credit demand. However Union Bank of India has already raised its interest rates on bulk deposits for 1 year to 6.5% from 6% earlier.

S Govindan, general manager, Union Bank of India said, “We revised the rates on bulk deposits for 1 year in line with the certificate of deposit rates.”

In mid-April the bank hiked its retail deposit rates to 7.5% for 5 years, 7.25% for 3 years and 6.5% for 1 year.

“We are continuing with these rates for now and will take a call when markets start showing signs ofliquidity crunch,” said Govindan.

ING Vysya Bank raised its interest rates by 0.50 to 1.25 per cent

2010-06-07T03:53:00.000-07:00

ING Vysya Bank has raised its interest rates by 0.50 to 1.25 per cent on select tenures. According to bank release the revised rates will come to effect from June 4, 2010.

The rates have been revised by 5.25 per cent from 4.75 per cent for deposits with a maturity slab of 92-182 days. It added, the revised rates for the 184-364 days maturity slab is 184-364 as against the earlier 5 per cent.

While on 366 days to less than two years, the rate has been increased to 6.50 per cent from 5.25 per cent, and for 730 days to 10 years, the new rate is 6.75 per cent against the earlier 5.75 per cent.

The release said the senior citizen will provided an additional 0.25 per cent.

Axis Bank reduced interest rates on long tenure deposits

2010-06-02T02:59:00.000-07:00

Axis Bank, country’s third largest private sector lender has announced cut in its deposit rates by 25-50 basis points (bps) across select longer-dated maturities. Bank said at present the liquidity situation is not as harsh as it had previously anticipated therefore it decided to reduce the deposit rates.

The rate has been reduced of two years to 30 months by 25 bps to 7.0 per cent and on 30 months to three years maturity the rates has been reduced by 50 bps to 7.0 per cent. The revised rates have come into effect from May 22.

“We initially raised rates, thinking the liquidity situation will be harsher than it is. But interest rates have not risen to that extent and, so, we decided to reassess the situation and cut rates on the two long-term maturities,” said R V S Sridhar, senior vice-president of treasury, Axis Bank.

In the past two months it is the second bank to reduce its deposit rates, earlier in mid-April Bank of India reduced its interest rates for deposits above Rs 1 crore.

According to some of the bankers, in spite of temporary liquidity squeeze on account of advance tax and 3G spectrum payments, there is less possibility of increase in medium and long term deposit rates over the next two-three months.

B A Prabhakar, executive director at public sector lender Bank of India said, “We also lowered rates about three-four weeks ago. Deposit rates are unlikely to go up for the next two months at least, because the liquidity situation is still relatively easy and we are not seeing any further tightening by RBI on the policy front.”

He added, although the banks have started raising lending rates for short tenures.

According to Ashish Parthasarthy, treasurer at HDFC Bank, “As of now, deposit and lending rates are likely to remain stable. There could be a slight increase in ultra short-term lending and deposit rates, but medium- and long-term rates are unlikely to increase for the next two months, at least”.

How to match the interest earned on fixed deposit with the tax deducted by the bank?

2010-03-18T04:38:00.000-07:00

Fixed deposits (FD) is the most convenient and simple instrument of investment. In this you can know about the earnings at the time of making deposit but the difficult part is to match the amount of interest earned on these deposits with the amount received and the tax deducted at source.

Let us take a case study to understand this point.

For instance Rajesh invests Rs 100,000, for one-year each in two FDs, in the financial year 2009-10. One investment he did in the beginning of the 2009 and will mature in March 2010 at the rate of interest of 7%. The second investment he did in July 1, 2009 at 7.2 per cent. Both the FDs will give simple interest cumulated at maturity, though for accounting purposes the amount accrues to the investment at the end of each quarter. In case Rajesh considers the interest earned when it is received, how will he account for the second deposit? How to match the interest earned with the tax deducted by the bank?

How to tackle this issue

First, what is the method of recognizing the income or interest earned? One is the accrual method in this the amount accrued on the deposit during the year is considered as income, even if not received. The other is the income when actually received, the cash way of accounting.

Generally an investor will find the former method convenient, especially when the income with a bank is crossing Rs 10,000 in the year. Therefore, Tax Deduction at Source (TDS), will be done, it will be in tune with the route adopted by the bank.

Here, the bank will consider the income earned by the depositor till the end of financial year and then deducts the tax on it.

The tax authorities have said banks should deduct TDS only on the amount credited and not on the provisions made. Thus, Rajesh must know when bank is crediting income to his account, in this case, quarterly, and this is the figure to be taken for accounting purposes.

In this case the income will be credited with the maturity, for the deposit that is maturing in March 2010. Thus, the interest earned will be Rs 7,000 for the year. The interest earned will be included in the investor's total income. Hence the income is actually received, so there is no complication.

The second deposit will also pay the amount at maturity. This deposit will mature in one-year time on July 1, 2010. As it is clearly stated that deposit amount will accrues at the end of every quarter, there is a need to consider the income earned till the end of March. The bank will follow the same procedure and they will use this for tax deduction. The income earned, here, will be Rs 5,400 till the end of March. Hence the investor should consider the income till March 2010, even though he may not have received the amount from the bank.

The tricky part is the alignment for taxation. The investor will get the net amount after TDS, as the amount of interest earned will be crossing the limit of Rs 10,000 during the year. Let us make it simple for understanding. Suppose the interest of rate is 10 per cent (without cess) for tax deduction. Thus, the amount received by Rajesh will be reduced by Rs 1,240 (10 per cent of 7,000 plus 5,400) for the TDS and the net amount received will be Rs 4,160.

To calculate the total income earned during the year, Rajesh cannot add the amounts received, as there is a TDS amount involved. He has to gross the total amount earned, which will be Rs 7,000 plus Rs 5,400 that is a total of Rs 12,400. This figure will be included in the income for the year under the head of income from other sources. Thus, the total amount of income and the tax payable on this income will be calculated. From this, the TDS amount has already been deducted by the bank, Rs 1,240, will be adjusted and the whole process is completed.

IOB hiked deposit rates, Central Bank reduces rates of loan for doctors, revise deposit rates

2010-03-18T04:31:00.001-07:00

On Monday Indian Overseas Bank (IOB) has revised its deposits interest rate. The revised rates will be effective from March 15. As per revised rates for deposits of less than Rs 1 crore for tenure of 270 days and less than one year, the rate has been fixed at 6%, while for one year to less than five years at 6.75% and five years and above at 7.25%. And for a deposits of Rs 1 crore and above for a period of one year and above, the rate has been fixed at 6.5%.

Another bank Central Bank of India, a state-owned lender is offering loans to doctors at low interest rate. Bank has reduced interest rates on loans by 150 basis points for doctors for purchase of equipment and 100 basis points for construction of nursing home/ clinic/clinic cum residence (from 12% to 10.5 % for purchase of equipment and from 13 % to 11% construction of nursing home/ clinic/clinic cum residence.)

The bank has also announced wavier of the processing fee for its direct housing finance scheme, personal loan to corporate and non-corporate employees, Cent Jewel, teachers’ loan, Cent Vyapari, Cent Swabhiman plus until the end of the month.

The bank has also hiked its deposit rates on domestic term deposits from 25 basis points to 150 basis points on the deposits of Rs 15 lakh and above. The revised rates will be effective from Monday. The interest rate on domestic term deposits above Rs 15 lakh, but less than Rs 1 crore has been revised to 6.5% (6.25%) for the period one year to less than two years has been revised to 6.75% (6.5%) for two to less than three years and to 7% (6.5%) for three to less than five years.

Slowly banks are raising fixed deposit rates

2010-02-26T02:55:00.000-08:00

In the coming months fixed deposit can again be a good investment option as the deposit rates are on their way up. But the things will get better in fiscal 2010-11.

Last week HDFC Bank had raised its deposit rates by 25-150 basis points (one basis point equals one-hundredth of 1%) across various terms. Earlier this month, IDBI Bank and ICICI Bank had raised the deposit rates by 25-50 basis points for some maturities, while J&K Bank had raised rates by 75 basis points on deposits above one year. The public sector Union Bank of India is proposed to raise deposit rates later this week. More banks are likely to follow the suit.

According to analysts the bigger banks will join the bandwagon to remain in competition. Ashish Gupta and Deepak Ramineedi, analysts at Credit Suisse, wrote in a report dated February 22, “With these rate actions, State Bank of India and ICICI Bank deposit rates are now at a 50-100 basis point discount (for some maturities) and they will now need to follow suit.”

But big bankers disagree with it. OP Bhatt, chairman, SBI, said in Delhi that his bank will not raise deposit rates before May-June as it has surplus liquidity (the amount of free money it had to give out as loans).

By the end of December 31, 2009, the bank liquidity was whopping over Rs 75,000 crore.

MD Mallya, chairman and managing director, Bank of Baroda said, “There is ample liquidity in the system. Hence, at the moment we are not looking at raising interest rates on deposits.”

But Gupta and Ramineedi of Credit Suisse said that “as loan growth (14.8% currently) accelerates and the central bank starts tightening money, this liquidity will also dry up soon.” In the recent past banks’ deposit growth rates have declined as much as four-year low of 17%. Therefore, banks raise lending rates then deposit rates have to rise.

Use FD overdraft to pay for big purchase deals

2010-02-19T03:04:00.000-08:00

To make payment of big purchase deals go for overdraft facility rather than taking personal loan or swiping a credit card. In case of personal loan or credit card you have to pay high interest. Whereas in overdraft facility you can place a fixed deposit with a bank and avail this facility.

When you place your fixed deposit with bank you earn return on investment and can use the same money to leverage funds at a low interest rate which can be used for the payment of purchases.

Moreover in overdraft facility you can borrow funds at 1 per cent to 2 per cent above the fixed deposit rates. Currently, the deposit rates of most of the banks range from 6 per cent to 7.50 per cent for a one to three years time period. However, SBI is offering 6 per cent, ICICI Bank 6.25 per cent and HDFC Bank is offering 6.50 per cent interest on fixed deposits for a one-year period.

If the payment is done through credit card, it is split into equated monthly installments for over a period of one year, which means you might have to pay an interest of 36 per cent to 45 per cent per annum. Whereas personal loan is an unsecured loan, the interest rate can range from 16 to 18 per cent.

According to an official of Oriental Bank of Commerce, “It is always better to take an overdraft facility against a fixed deposit than pay through a credit card for long-term repayments’ because it will carry a minimum interest rate, even lower than personal loans”.

An official of United Bank of India said, “During the time when interest rates were very high, many customers who had placed their long-term fixed deposits managed at a very low rate to take the advantage by financing their purchase of cars.”

According to Financial planner Kartik Javeri, “During an emergency, it (overdraft) is the best source for financing, but one should also have the capability to pay money quickly.”

IDBI Bank raised deposit rates, introduced new slab of 500 days

2010-02-19T02:41:00.000-08:00

IDBI Bank has increased its deposit rates by 25 basis points (bps) and has also added a new slab of 500 days offering 7 per cent rate.

Before IDBI bank, Union Bank of India, ICICI Bank and Jammu & Kashmir Bank (J&K Bank), have raised their deposit rates. But Union Bank and ICICI bank had raised deposit rates for only one slab, whereas IDBI has raised rates across five slabs.

Last week, J&K Bank had raised deposit rates by up to 75 bps for slabs of one year or more. IDBI Bank said its new updated rates on term deposits will be applicable from February 15.

A senior executive of IDBI Bank said, “This is the right time to raise funds albeit at slightly higher rates, especially in the 500-day bucket, as the liquidity in the system is high. This will help reduce pressure of competition next year, as these deposits would mature in July-August 2011.”

RATE CARD

* In early January, Union Bank introduced new maturity bucket of 555 days offering 6.75 per cent
* Effective January 8, ICICI Bank raised the interest rate on deposits of 270 days to less than one-year maturity by 25 basis points to 5.75 per cent
* On January 29, RBI announced a two-stage hike in CRR by 75-basis points to 5.75 per cent
* Effective February 8, J&K Bank raised rates by 75 basis points for maturity buckets of over 1 year

He added, “The bank’s dependence on market borrowings has been high. Now, we want to grow the base of a stable source of funds over the next three-four years”. The maximum rate being offered by bank is 7.50 per cent on deposits with tenure of 1,100 days, while the on the new slab of 500 days it is offering 7 per cent a year.

A banker pointed out banks are trying to acquire deposits in select maturities, in order to steal a march over the competition before they start raising interest rates as a whole.

Bank has raised deposit rates after the hike of 75-bps rise in the cash reserve ratio, or the proportion of deposits that bank set aside. The CRR is expected to suck out Rs 36,000 crore from the system.

During the second fortnight of January the deposit flow was healthy the banks getting nearly Rs 53,000 crore and the growth during the year till January 29 was 17.09 per cent, marginally low from the Reserve Bank of India’s (RBI’s) projected 18% for the year.

At present other players don’t seem to raise rates, due to low demand for funds. Banks like State Bank of India currently are not planning to do any increase, as it has around Rs 75,000 crore of cash.

Indian Overseas Bank Chairman & Managing Director SA Bhat informed, “There is enough liquidity in the system. Since we are not in a position to raise lending rates due to extreme competition and year-end pressure, I do not propose to increase deposit rates unless the asset-liability committee thinks otherwise.”

All about flexi bank account

2010-02-09T04:03:00.000-08:00

On the banks website under deposit schemes you must have come across flexi bank account or must have heard some where, but what exactly flexi bank account is?

Banks have introduced a new banking account- flexi bank account under this they offer higher interest of a fixed deposit and the liquidity of a savings account. Under flexi account you can set your cash limits on the basis of your regular cash requirements and transfer the remaining amount to your term deposit and earn higher interest. During the opening of this account in the form once you have set the rules, the bank will do it automatically.

For instance, you have opened a flexi account of Rs 100,000 for a year, thus your flexi deposit of Rs 70,000, transferred to fixed deposit will earn 5% interest or Rs 3500 every year. The remaining amount of Rs 30,000 will remain in your savings account which you can use to meet your everyday needs as well as earn 3.5 per cent interest or Rs 1,050.

In case you issue a cheque of Rs 35,000 the excess amount of Rs 5,000 it would be transferred into your savings account from your flexi deposits with no extra charge on it depending on your bank terms.

Although some of the banks have different types of flexi bank accounts each having its own rules about the same. Generally there are two types – flexi fixed deposit account and sweep account.

Flexi FD

With flexi FD you can withdraw funds whenever you require. You can open a fixed deposit account ranging between Rs 25,000 to Rs 50,000 for a specific term depending on your bank. Some banks give option of zero balance savings accounts for a higher FD amount.

In case you require more cash than what you have in your savings account then you get the benefit of flexi FD. In such situation your bank will withdraw the excess required amount from your flexi FD and deposit it in your savings account. If you have more than one FD then the bank works on ‘First In, First Out' or FIFO basis thus breaking the first FD opened.

Every bank has their own rules regarding flexi FD schemes. For instance if you have opened a flexi FD account with IDBI Bank or ABN AMRO these banks will split FD into units of Rs 1,000. In case, you want to withdraw Rs 16,200 these banks will transfer Rs 17,000 from your flexi FD into your savings account.

Whereas the HDFC bank splits FD into units of Re 1 thus transfer only the exact amount you need and the rest will remain balance in your flexi FD to continue to earn interest as per the bank’s rate.

Sweep account

Sweep account also known as savings plus account is the reversal of a flexi FD. You should open a savings account in which you fix a minimum limit and the balance that exceeds this limit will automatically be transferred into your FD.

In ICICI bank sweep account you have to maintain a minimum balance of Rs 10,000 in your saving account and the excess amount will be transferred to your FD in multiples of Rs 5,000. While in State Bank of India in sweep account with a minimum of Rs. 10,000 a new FD is created whenever there is a transfer of money over and above Rs 10,000. in Canara Bank the minimum limit in sweep facility is of Rs 15,000.

Advantages and disadvantages of these accounts

In flexi FD account you can enjoy benefits of both savings as well as fixed deposit i.e. higher interest of fixed deposit and liquidity of savings account.

But it also has a drawback. You can enjoy the benefits for only a short term, because the tenure of these accounts is of one year only as its main aim is to give you liquidity and higher interest.

Most of the banks charge the penalty, if customers do not maintain minimum limit in their savings account. There is also a pre-closure charge in case customer closes these accounts before the tenure.

In flexi FD reverse sweep facility is not allowed that is the funds from your savings account cannot be transferred into your flexi FD. In sweep account reverse sweep is allowed.

Also there is a set limit for overdraft and you can keep money in your account for a minimum number of months only. Therefore, investing in these accounts means you invest your money in one place and there is no diversification of your portfolio.

Which account is better?

If you want that to earn higher interest on your money in savings account then flexi scheme might be helpful. However, when you opt to open any of these accounts you must carefully analyze your financial requirements to set the minimum limit as you can be penalized for falling below the predetermined levels or pre-closing of accounts. The decline in interest rates of fixed deposits should also be taken into consideration while opening an account.

Best investment option for senior citizen to earn regular income

2010-02-09T03:57:00.000-08:00

Whether a person is employed or approaching the retirement age, everyone searches for investment avenues which are safe and can offer regular income. Although one can find various schemes of investment but security of money is most important factor.

In 2004 Government of India introduced one such special scheme known as Senior Citizen Savings Scheme or SCSS to cater the financial needs of senior citizens.

However the scheme had become very popular amongst the people, but last year when banks offered high rates on fixed deposits had overshadowed the scheme. But in the past few months the banks are reducing deposit rates due to which senior citizen can go for this scheme.

The only shortfall of the scheme is the interest earned on it is taxable. In case the interest income in a year exceeds Rs 10,000, then the TDS (tax deducted at source) is cut.

Although in the recent amendment the investment of up to Rs 1,00,000 in a year done under this scheme has been exempted under Section 80C of the Income Tax Act.

Here the advantages and disadvantages of the scheme have been discussed to help the senior citizens to compare it with other options available.

Senior citizen, a person who has completed 60 years or above is eligible for the SCSS but there is a provision that a person who has completed 55 years and opted for voluntary or any special retirement scheme, can avail this scheme subject to certain conditions.

The scheme is basically for senior citizens therefore it has some special features.

1. The scheme offers a fixed rate of return at 9% per annum, which is higher than the returns offered on other fixed income instruments like PPF and NSC.
2. The investor gets interest income quarterly. Generally, it is the last working day of every quarter. There is no option of getting interest income yearly or cumulative interest at the time of maturity.
3. The tenure of the scheme is 5 years, but premature withdrawal after a year is permissible which gives the benefit of better liquidity to meet unforeseen expenses. Premature withdrawal involves some cost. In case the deposit account is closed after the first yea, but before the second year, 1.5% of the principal amount is deducted otherwise 1% of the principal amount is charged once the scheme completes two years.
4. One gets the option of extending the scheme for another three years on maturity at the prevailing interest rate at that time.
5. The minimum amount of investment is Rs 1,000 while the maximum investment can be Rs 15 lakh. The investment has to be made in multiples of Rs 1000.
6. One also gets the option of opening more than one account, but the new account can be opened after a one month gap. The account can be opened in an individual’s name or can be opened jointly with spouse. Joint account with any other family member or relative is not allowed. Although one can open more than one account but there is the cumulative investment limit has been set to Rs 15 lakh.

There is one perception among the people that it can be opened only with post office but it is not so. Few of the designated branches of nationalized banks and the ICICI bank are authorized to receive deposits under the scheme.

Looking at the above points the scheme looks fruitful but is it really worth investing in this scheme. To get the answer we need to compare this scheme with other investment avenues having similar features.

A bank fixed deposit features are some what same. At present banks are offering interest rates in the range of 7-7.5%. But the nationalized banks and some of the private banks offer additional interest benefit to senior citizens in the form of 25-50 basis points higher. Therefore the interest rate offered on fixed deposit can range of 7.25-8%, but this is less than 9% offered on SCSS. Thus the SCSS is a bit more profitable than bank fixed deposits.

Let us compare SCSS with MIS (Monthly Income Scheme) offered by post offices in India, having same features. Under MIS the fixed rate of return is 8%.

The interest in MIS is paid monthly and the tenure is six years. In this comparison we consider the returns under SCSS over six years.

For instance Mr A deposits Rs 1,00,000 under SCSS, while Mr B invests Rs 1,00,000 with the post office under MIS.

Mr A will receive Rs 2,250 every quarter till the end of the sixth year and the principal amount will be Rs 1,00,000 which he will get back on maturity. Thus the total interest payout over 6 years will be around Rs 54,000.

While Mr B will get around Rs 660 every month, which comes to Rs 2,000 every quarter till the end of sixth year, which stands to be Rs 250 less than the quarterly receipts under SCSS. But under MIS a bonus of 5% on principal amount is paid at the time of maturity. Therefore Mr B will be receiving Rs 1,00,000 along with Rs 5,000 as bonus at the end of sixth year.

Thus the total profit Mr B earns over six years amounts to Rs 53,000. However in terms of total profit earned under MIS or under SCSS over the tenure, there is not much difference. But in case once money requirement increases periodically then the SCSS is a better option as the investor gets more money in the hand every quarter.

Looking at the above points and comparison one reaches to a conclusion that senior citizens must invest a portion of their retirement corpus in the Senior Citizen Savings Scheme as they will get everything – safety, liquidity and regular periodic income under this scheme.

Banks report surge in Casa ratio as against fixed deposits

2010-02-04T03:24:00.000-08:00

In the past few months term deposit rates have lost sheen as banks have reduced rates. Now people prefer to park their money in current account savings accounts (Casa) rather than investing their money in fixed deposits for longer duration. Banks have reported a significant rise in their current account savings accounts (Casa) ratio for the quarter ended December 31, 2009.

State Bank of India (SBI), country’s largest commercial bank is the major one to witness surge in the ratio of its Casa. Bank’s Casa surged to 42.94 per cent as on December 31, 2009, against 36.58 per cent in the corresponding period a year ago, thereby registering a growth of 29.94 per cent. Earlier in the same period SBI overall deposits growth stood at 11.26%.

When bank Casa ratio increases its cost of funds comes down. On the other hand HDFC Bank Casa ratio surged close to 49 per cent as on December 31, 2009, as against 40 per cent as on December 31, 2008. And, as of December 31, 2009 the savings account deposit of HDFC Bank stood at Rs 46,696 crore, registering a growth of 41.2 per cent over December 31, 2008, whereas current account deposits amounted to Rs.33,276 crore as of December 31, 2009, a growth of 37.2 per cent over December 31, 2008.

Ashish Parthasarthy, head of treasury, HDFC Bank, said, “We traditionally have the highest Casa ratio in the industry. Since, the difference in interest rates offered on term deposits and savings are not significant, many people prefer to keep their balance either in current or savings accounts, which is resulting in higher Casa.”

A similar trend was also reported from ICICI Bank, the largest private sector bank in the country. ICICI Bank Casa ratio registered at 39.6 per cent at the end of third quarter of the present financial year as against 27.4 per cent on December 31, 2008 and 36.9 per cent on September 30, 2009.

Regarding savings deposits ICICI Bank reported an increase of Rs 1,736 crore and in case of current deposits it was Rs 3, 581 crore, during the quarter ended December 31, 2009. Besides major players improvement in Casa ratio was also reported from mid-size and smaller banks such as Yes Bank and IndusInd Bank. Improvement in low-cost deposits was also reported from these two banks.

Yes Bank Casa ratio increased to 10.1 per cent at the end of December 2009 from 9 per cent at the end of December 2008.

Rana Kapoor, founder Yes Bank told Financial Chronicle, “Though, our Casa is at 10.1 per cent, the share current deposit is much higher at 80 per cent, which effectively means that 15 per cent of our total deposits are low-cost deposits.”

High inflation can reduced your fixed deposit close to zero

2010-01-19T04:03:00.000-08:00

Last year all the banks reduced their fixed deposit rates for almost every period. Currently, according to official inflation figure is above 7 per cent which is a bad news. The prices of almost everything are very high. So the returns from fixed deposits might amount to nothing if the current rate levels continued as all the interest earned will be absorbed by price rises.

According to experts investors, who invested in FDs for security of capital, should think more than safety and add should take some risk to earn real returns.

Currently interest rates being offered by leading banks ranges between 6 per cent and 6.5 per cent on one-year deposits and on Thursday the inflation have touched 7.31 per cent. The retail prices are managed by consumer price index is currently around 12 percent and food inflation is just short of 20 per cent.

Sundeep Sikka, chief executive officer, Reliance Mutual Fund stated, “In the current scenario it is an eye opener as money lying in bank fixed deposits is actually money eroding.”

Although banks are offering 6 per cent interest on a one-year deposit but the return earned gets reduced to below 5 per cent in case it comes in income tax range.

Also, in such case the real rate of return, which is equal to nominal rate less the inflation, turns negative. On the other hand, the BSE’s benchmark stock index, the Sensex has earned a compounded annual return of 23 per cent over five years regardless of serious lows.

“In such a case it (FD) is not even covering one against the rising cost of living,” said Surya Bhatia, a Delhi based financial planner. “Investors should look at instruments that can at least cover them against inflation and start taking a little risk.”

Fixed deposits come with more benefits

2010-01-06T01:20:00.000-08:00

Fixed deposits (FDs) a traditional investment option has been a vital part of every investor’s portfolio, due to assured rate of return. However FDs have been plain vanilla products with no additional benefits attached to it. Now banks, in an era of competition are offering few packaged deals in order to attract more investors. Few of the interesting deals being offered are:

Insurance: Some banks are offering insurance with FDs but the main product will be the same along with additional benefit. But the insurance will be based on the deposit amount and the tenure.

For instance, one of the bank is offering free accident insurance cover worth Rs 5 lakh on a 3-year deposit of Rs 25,000 carrying an annual interest of 8 per cent. This adds the value to the product.

Most of the banks offer accident insurance only. The insurance amount ranges from, Rs 3 lakh and 7 lakh. But the accident cover will have a lot of clauses. Therefore, your overall insurance needs should not depend on such bundled policies.

Floating rate deposit and reinvestment of interest: Mostly FDs are offered at fixed rates for the specific tenure. But some of the banks and non-banking finance companies (NBFCs) offer deposit schemes at floating rate of interest. For instance, HDFC offers floating rate deposit on which the interest rate is given every quarter.

Then some banks have facility of reinvestment of interest amount at the existing rates. For instance you get Rs 2,000 interest every quarter on your deposit, so the bank will make a new FD with this amount at the existing rates.

No penalty: FDs are made for a fixed tenure. In case depositor withdraws before the maturity, the institution charges a penalty. In such a case, the overall return will come down. For instance a FD was made for three years at the rate of 8 per cent and is withdrawn after one year, the rate available could come down to as low as 5 percent.

Some of the banks have products where the rate of interest is not reduced if FD is broken before the tenure. The investors who look for flexibility, such deposits are beneficial for them.

Time period flexibility: Some of us make FD for a particular purpose such as for purchasing an expensive item on child’s marriage. There can be chances that these plans are postponed and the depositor does not require to extend the tenure of his/her investment. In such a case one option is to let the deposit mature and then reinvest it. But there is no surety that you will get the same interest rate in the future or it will be reduced. Therefore some of the banks have started providing FDs where investor is allowed to increase the time period of investment without major changes in other conditions.

Adding and breaking deposits: A large amount of paperwork is involved in case a person makes multiple FDs of smaller denominations. Usually investors who might need money at various stages in future do such investment, so they do not deposit in bulk and then break the deposit.

To solve this problem banks have introduced products where a bulk deposit is divided into deposits of smaller denominations as per investor’s need.

On such deposits investor earn higher benefits. Also, banks offer facility to add investments easily so that administration does not become a very difficult task.

Banks low-cost deposits share drop to a 10-year low

2009-12-28T03:35:00.000-08:00

In the recent times group of pubic sector banks has witnessed drop in their low-cost deposits, the drop is a 10-year low While individuals are preferring bulk deposits and more are depositing more money in fixed deposits, which offered higher interests a year ago.

Also, the opening of customer-savvy private sector banks is responsible for bringing down investments in low-cost deposits (savings and current account balances) at public sector banks.

This year public sector banks, savings and current account balances accounted to 31 per cent of their total deposits, which was 34 per cent in 1999 and was at peak of 38 per cent in 2066, as per the study conducted by Indian unit of London-based investment banking group, Noble.

But among the public sector banks there have been some of the exceptional banks like State Bank of India (SBI) and Bank of Baroda (BoB). SBI accounted increase in its savings and current account balances in its total deposit by 41 per cent at the end of September from 38 per cent in 1999. Although, in 2006 bank savings and current account balances was 48 per cent. While BoB, has witnessed increase of 36 per cent from 32 per cent.

According to an anonymous chairman of a large public sector bank, public sector banks took time in taking on competition from private sector banks such as ICICI Bank and HDFC Bank.

Private sector banks have got hold of salary accounts of companies due to marketing skills that they used in dealing with companies, especially with those having large number of employees, he said.

In 2007 there was rise in expensive term deposits and wholesale deposits of public sector banks’ deposit portfolio as liquidity in banks have got scarce amongst an unprecedented high credit growth, due to home and other retail loans.

In 2007, banks mostly laid stress on grabbing every bulk deposit available, in a bid some of the banks offered interest rates as high as 15 per cent in some instances. At that time the fight for bulk deposits between the banks intensified so much that the then chief executive of Indian Banks’ Association (IBA) had to meet the top officials at SBI on behalf of ICICI Bank.

The IBA official gave the message that the banks should stop increasing bidding for bulk deposits, as there was lack of faith on each other no solution could be found for this.

The ICICI bank low-cost deposits share in its total deposits stood at 13 per cent 10 years ago which has increased to 37 per cent.

While the HDFC Bank low-cost deposits showed high percentage. In September, bank low-cost deposits accounted at 50 per cent of total deposits, which is up from 46 per cent in 1999, although it has come down from 61 per cent in 2005.

Since 2004 HDFC Bank’s low-cost deposits share was above 50 per cent. However none of the banks have been able to achieve 50 per cent and more share of low-cost deposits in total deposits.

Banks continue to invest in mutual funds, ignore RBI directions

2009-12-07T03:30:00.000-08:00

The Reserve Bank of India (RBI) has told banks not to invest in mutual funds, mainly because the credit off take has still not improved, but they continue to give funds to asset management companies.

As per the latest RBI report, by fortnight ended November 20 the investments done by banks in MF schemes has increased from Rs 4,173 crore to Rs 1,64,656 crore. Banks invest very high amounts in the beginning of quarter and then withdraw funds at quarter end so that they do not require providing additional capital. And again they invest back the funds after the quarter ends.

Last month RB governor D Subbarao, in his monetary policy review had pointed out that bank investment in mutual funds have increased and their boards should put some limits on such investment.

Banks have invested funds with liquid mutual funds basically not only from their own surplus funds as lending was low, but have borrowed money from the collateralized borrowing and lending obligation (CBLO) at cheaper rates and later invested funds in mutual and also in RBI’s reverse repo scheme and earned a higher return. To stop such arbitraging, the central bank imposed a CRR of 5% for CBLO borrowings, which means the banks will have to keep aside more funds as cash so that they can invest with the central bank, in order to reducing their invested surplus.

According to bankers, banks are investing in MF due to poor credit off take. M Narendra, executive director, Bank of India, told after the RBI guidelines, banks have started re-looking at their strategies thereafter have revised their internal targets for mutual funds investments and sub-targets for various schemes. Thus, there can be measured increase in investments.

On the other hand some of the banks having ultra-floats (huge temporary surpluses) might have invested in liquid funds, he said. Anil Girotra, executive director, Andhra Bank said, “Many projects are still waiting to be executed because of which disbursals are delayed, though there may be sanctions, because of which banks could have surplus funds. Only those banks who have had temporary surpluses have deployed funds in liquid MF schemes rather than deploying in the overnight call money market.”

Tata Motors raised Rs 264 crore through revised fixed deposit scheme

2009-11-23T02:06:00.000-08:00

Tata Motors, India’s biggest automobile company this year in August had launched revised fixed deposit scheme and company has raised Rs 264 crore through this scheme. Company has the permission to raise Rs 1,300 crore from the revised scheme

The rate at which the market has retorted to the revised fixed deposit scheme has narrowed considerably, especially in comparison to its previous deposit scheme, when the company had collected Rs 2,700 crore in nine months.

Previously the amount was raised on higher payment of interest rates, which the company has now revised to downwards by 325 basis points to 8.75 per cent for a period of three years.

From the earlier FD scheme the Tata Motors was able to raise an average of Rs 300 crore per month, when deposit schemes of other companies were struggling. According company annual report the FD scheme was launched to cater the funding requirement of the company.

In November last year when company launched the scheme it offered 11 per cent interest rate for a period of three years on a minimum amount of Rs 20,000. In August the company revised interest rate to 8.75 per cent keeping in order to similar cut in FD’s offered by banks.

According to Tata Motors spokesperson, “Tata Motors had introduced a fixed deposit scheme, under which we could raise about Rs 2,700 crore. We did raise that amount. On the date of the annual general meeting (AGM) this year (August 25, 2009), we renewed our FD scheme. The company is now authorised to raise about Rs 4,000 crore. Since August 25, Tata Motors has raised about Rs 264 crore.”

According to market experts the Tata Motors launched first FD scheme at the time when liquidity in the market was very low and people preferred to save their income than spending it. As the company offered higher interest rate than most fixed deposit scheme of banks and, also carried the brand name Tata, it got a favorable response from the market.

Moreover the revised rate offered by Tata Motors is still higher than most banks, including ICICI bank, HDFC bank and State Bank of India, which are offering 6-7 per cent interest for the comparable terms.

As per the norms, Tata Motors can float its current FD scheme till the next AGM or till it meets the Rs 4,000 crore target.

Recently the company has cleared the $3 billion debt it had taken to buy the two UK-based brands of Jaguar and Land Rover, thus it has the option of not to stock on the FD scheme a lot. It aims to use the funds for day-to-day operations, including catering of the working capital requirement.

IDBI Bank, Central Bank announces cut in deposit rates by 0.25-0.5 per cent

2009-11-13T01:19:00.000-08:00

Central Bank of India and IDBI Bank- two state-owned banks have slashed deposit rates by 0.25-0.5 per cent in various maturities in order to bring down the cost of funds.

Before country’s largest lender State Bank of India has reduced its deposit rates by a similar margin.

IDBI Bank revised rates will be effective from November 16 while the Central Bank has to yet announce the rate reduction officially.

After revision on one year to less than two years maturity deposits IDBI Bank offers a rate of 6.5 per cent as against 6.75 per cent, informed IDBI Bank sources.

On tenure 2 years to less than 1,100 days deposits, bank will offer rate of 7 per cent (7.25 per cent) while that of 1,100 days maturity deposits will now attract a rate of 7.25 per cent (7.5 per cent) earlier.

Moreover on 1,100-days to 5 years, 5-years to 7-years and 7-years to 10-years deposits bank will offer 7 per cent (7.25 per cent), 7.5 per cent (7.75 per cent) and 7.75 per cent (8 per cent) earlier, the bank said.

The bank said senior citizens will get 0.5 per cent above the card rate.

Banks focusing on recurring deposits to garner long-term resources

2009-11-11T02:36:00.000-08:00

Although top bankers are calling out for the need to increase low cost current and savings account (CASA) deposits, on the other hand they have asked their branches to speed up the process acquire long-term resources under recurring deposit (RD) schemes.

It is not difficult to find out the reason why banks are moving their focus on RDs. Although CASA deposits are low cost, but they are not stable as customers can withdraw funds any time. Whereas in RD scheme customer withdraw amounts ranging from a minimum of Rs 50 to a maximum of Rs 10,000 a month and receive a lump sum on maturity, which provides stability to a bank’s resource base.

Earlier RD scheme went out off the sight of banks because of increasing competition among banks to acquire CASA deposits.

In spite of the fact that term deposit rates apply to RDs and interest is compounded quarterly, bankers claim that long-term resources collected under the RD schemes can somewhat handle asset-liability mismatches and also help in financing infrastructure projects.

Some of the banks such as Corporation Bank, Union Bank of India, Bank of India and Central Bank of India, in the last few months have started refocusing on RDs. At present, the RD portfolios of most of the banks, public, private or foreign, have nothing to write about.

However RDs can be related to systematic investment plans floated by mutual funds, leaving latter’s attendant risks. A salaried depositor can build up savings for child’s education, daughter’s marriage, retirement, etc. by maintaining savings discipline. Some banks even allow inconsistent installments.

For instance, a 60-month RD with a bank at a monthly installment of Rs 1,375 per month will give a depositor Rs 100,890 at maturity (interest rate 7.25 per cent, compounded quarterly). Also, interest earned on the amount is exempted from tax deduction at source.

In April 2009, Corporation bank a Mangalore based lender had launched ‘Lakhpati RD scheme’, it is marketing it in a big way to wipe up long-term resources of 5-10 years duration, informed the Chairman and Managing Director, Mr J.M. Garg.

The bank has been able to manage to collect about Rs 100 crore every month ever since the scheme’s launch. The bank is looking for doubling the monthly collection to Rs 200 crore by signing up two lakh customers for the scheme (as against 90,000 now) by March-end 2010.

On the other hand Bank of India is pushing up its branches to promote the RD scheme. Mr A.A. Badshah, General Manager, pointed out, “We can gauge a customer’s behavior by his savings discipline. If a RD account holder is regular in depositing his/ her installment, say for two-three years, we can then cross-sell our loans. It is unlikely that such a customer will default on loans.”

While Union Bank of India’s Union Monthly Plus RD scheme, which was launched six months back, has been able to collect about Rs 400 crore through 3 lakh accounts. According to Mr S. Govindan, General Manager, “Our RD deposit base at around Rs 500 crore could be termed negligible when compared with our total deposit base of over Rs 1 lakh crore. However, with our new scheme we want to grow our RD base to 10 per cent of the total deposit base over the next few years”.

Central Bank of India is also planning to launch an RD product along with an accident insurance feature later this month.

Fixed Deposit rates can increase

2009-11-11T02:33:00.000-08:00

In the recent credit policy review of the Reserve Bank of India (RBI) there were indications of rising interest rate which is good news for those who prefer to invest in fixed deposits. The central bank has given indications that in the coming days the rates can be tighten up and its impact can be seen in the first quarter of the next year.

In year 2009 various changes could be seen in the interest rate cycles and the rates were under the scrutiny of the central bank throughout the year. However the incentive packages introduced for the revival of financial markets brought down the rates nearly to zero levels in most economies but the in the domestic market the decline of rates was not major. It was only by a couple of percentage points that the domestic deposit rates had reduced during the first half of the current year.

It was government’s aggressive borrowing that was responsible in slowing down the fall and this was visible in the poor performance of income funds. Although it was observed that lack of fall or even the steady rise in long term paper rates have been responsible to bring changes in the performance of income funds.

In the near future there will not be much change in the scenario as RBI has indicated tightening of rates. Thus, those who have invested in income funds in the recent time will continue to face the tough times.

But rise in rates is definitely be a good news for the investors who prefer fixed deposits. In the last few quarters the rates had started falling, at present are not in the revival mode but can reverse in early to middle of 2009. Therefore the investors who like to invest their funds in fixed deposits can wait for few months to make the investments.

On the other hand if you invest funds in floaters it is not bad as they automatically take note of the changing interest rate scenario. As the inflation is also moving upwards, there are chances of the general interest rates to move up.

In case you are taking loan then the upcoming scenario is not going to be comfortable as rising rates will again push up the borrowing costs. The immediate impact could be seen on the products like personal loans and car loans although on the latter one the borrowers can get relief from manufactures side.

The recent change in the auto sector has again revived the hopes for the sector and the increasing competition in the passenger car segment can force OEMs to offer discounts. Such discounts can be in the form of subsidized interest rates as is given during boom times.

But for the two-wheeler segment the scenario is different due to high margin pressure in this segment. Moreover the loan ticket size is small therefore the competition amongst the lenders is restricted to a few players. Therefore, buyers might not get huge discount offers.

Meanwhile the home loan borrowers might have an escape from the pressures of high borrowing costs as the RBI is believed to be looking at supporting sector. There is news that banks will probably increase the share towards the priority sector lending and property loans can be a bigger chunk for the banks. This can help in reversing the ill effects of rising borrowing costs and shall help the customer base in a big way.

Banks witness increase in low-cost deposits

2009-11-06T01:55:00.000-08:00

Banks are experiencing increase in flow of funds in low-cost deposits rather than in bulk deposits.

The reason for increase in the share of low –cost Casa deposits is mainly because of revival in stock markets, economic activity and a fall in term-deposit rates.

As per the latest reports from banks, in most of the public sector banks there has been increase of 20 per cent in the low-cost deposits during the current financial year (2009-10). Whereas during the second half of 2008-09, in Casa deposits flow of funds was low to some extent because of high deposit rates, thus for most of the banks the share of these deposits got reduced. The banks started reducing deposit rates which fell to 6.25-7.5 per cent from 8.75-10.5 per cent, therefore individuals started looking for other investment options rather than investing funds in fixed deposits.

However on current account balances banks do not give any interest, while on savings accounts banks give 3.5 per cent a year.

The increased flow of funds in Casa has helped some of the banks such as ICICI Bank, the country’s largest private sector bank, to increase their Casa base. During July-September alone, ICICI Bank Casa base had increased by Rs 9,000 crore. The reason for increase in the share of Casa in total deposits was mainly due to decline in the deposit base as the bank avoided high-cost deposit from companies. The bank said in spite of rejecting or retiring bulk deposits, the mix between retail and Casa deposits still stand to 50-50.

The sources said focus to increase Casa, by taking certain measures such as higher minimum balance for savings bank accounts, was not completely responsible, it was due to companies moving towards markets for initial public offers (IPO) and assigning to institutional investors (QIPs), funds were transferred to the banking system for a few days. “This was one factor but not the only factor,” ICICI Bank told analysts.

Moreover the banks which saw fall in the flow of funds from sectors such as real estate and gems & jewellery as a result of financial crisis, are witnessing revival of sorts. In the real sector the funds have started flowing due to launch of new projects, gems & jewellery sector is on the path of recovery, an executive with a private sector bank said.

In the public sector banks such as Bank of India, Punjab National Bank and Bank of Baroda there has been 8-10 per cent growth in Casa till September over March. While Union Bank saw the highest growth in Casa in the first six months at 17.8 per cent with Casa accounting for 71 per cent of the incremental deposits since March.

State Bank of India (SBI) country’s largest lender Casa share in total deposits stood at 40.96 per cent at the end of September, the increase of 126 basis points (bps) over the same period of the previous year.

The increase in Casa funds in public sector banks was possible because the government had asked PSBs to provide growth targets for low-cost deposits in their statement of intent for 2009-10. This is the first time such a step was taken, as in previous years the government used to look for overall deposit growth targets. The increase in Casa was mainly done to ensure that banks can keep their cost of funds low, which help the government to bring down the lending rates.

In the recent months, the Reserve Bank of India (RBI) has also shown its concern on the falling level of Casa as banks over the last few years mainly depended on high-cost bulk deposits the funds coming in from companies, including public sector entities.

Over the years, there has been decline in the public sector banks share of Casa in total deposits, which has reduced from 39.95 per cent at the end of March 2006 to 32.66 per cent at the end of March 2009.

“There was a cut in spending in this year and increase in the propensity to save. This was mainly because interest rate on fixed deposits came down drastically and the depositors did not want to lock in their funds in fixed deposits,” a senior executive of a public sector bank said.

In the last one year banks have reduced deposit rates more than 300bps. For instance SBI is offering 6.25 per cent for one-year deposit; a year ago it was as high as 10.5 per cent.

The extension of branches has also helped banks in increasing the low-cost deposits. For instance during the first six months, SBI and Union Bank of Indian have opened 500 and 160 branches, respectively, have been benefited from the expansion.

According to bankers as the public and private sector banks are expanding their branches the share of Casa is likely to rise further.

Banks close deposit rates to where they were five years ago

2009-10-21T04:11:00.000-07:00

In the last few months the banks have slashed their deposit rates which have shrink depositors income. Banks have reduced interest rates (especially for deposits of up to one year) by about four percentage points in comparison to a year ago.

At present after the cut the deposit rates of 15 days to one-year period range from 3 per cent to 6.25 per cent per annum. Whereas five-and-a-half years ago, in March 2004, the peak rates for this time duration was about 5.25 per cent.

After that the deposit rates began to rise and gradually over the next few years, the deposit rates reached 8 per cent in March 2008.

Moreover banks started lending aggressively as the economic growth started improving.

For aggressive lending banks needed more resources thus they started increasing deposit rates.

However in the bulk market interest rates in the bulk fixed deposits market (deposits above Rs 1 crore) were equally higher by 0.50-1 percentage point. Thus the deposit rates of one-year tenure increased to 10.25 per cent a little over a year ago with the economy moving fast.

The global meltdown undulate also started effecting India, GDP numbers were reduced, as of loan growth figures. The banks also did not require extra liquidity as they had enough.

The investor’s confidence got shaken due to crisis but bank treasury continued to fill up even when they could not find lend-able opportunities for the money pouring in.

For instance State Bank of India for a few months received deposits at the rate of about Rs 1,000 crore a day which led it to set out the bulk money in the Reserve Bank of India’s reverse repo auctions that earned it 3.25 per cent.

Thus banks have been steadily reducing deposit rates for the past few months and now the rates have been closed to where they were five years ago.

After revision State Bank’s one-year deposit is at 5.75 per cent.

However some of the banks have reduced their rates deeper. Punjab National Bank, Union Bank and Indian Bank offer about 5.50 per cent for deposits of similar tenor while Bank of Baroda, a few months ago, pruned them to 5 per cent. While other bank’s deposit rates stand at 6.25 per cent.

Banks offering low interest rate on term deposits are safer than NBFCs

2009-10-21T03:08:00.000-07:00

Before investing your surplus money in term deposits you must consider the safety front while selecting between the bank and a non-banking finance company (NBFC). The bank might offer lower interest rates while the NBFCs offer higher interest rate but from safety point of view banks are safer for investment.

According to wealth managers along with the interest rate differential, there are other factors to be looked up on such as the credit rating of the instrument, the liquidity position of the company, its balance sheet and its sector of operation before make a final choice.

Rajesh Saluja, chief executive officer of Ask wealth pointed out, “Undoubtedly, NBFCs offer higher interest on deposits as compared to banks, but banks do provide much higher safety as compared to any NBFC. A customer who is opting for an NBFC should keep in mind the credit ratings of the company. Unless the credit rating is ‘AA’ or above, a customer should resist from parking their funds in any NBFC”.

Himanshu Kohli, founder of Client Associate also agree with Saluja’s views. He said, “While, a close look at credit ratings is important, it is beneficial for customers if they park their funds in any NBFC only for a very shorter duration.”

While some of the financial planners recommends diversification of deposits. Mukesh Gupta, director Wealthcare Securities said, “Since parking in NBFCs carries a huge risk, one should not park more than 20 to 25 per cent of one’s surplus funds in NBFCs”.

In case you decide to invest with NBFCs then sector of operations should also taken into consideration. An independent financial planner pointed out, “Parking of surplus funds in NBFCs that lend to the real-estate sector can be termed as a more risky proposition compared to NBFCs providing car finance”.

Although most of the banks are offering a maximum of 7.5 per cent interest on certain maturity, whereas some of the NBFC are offering as high as 12 per cent on deposits of similar maturity.

Regarding how safe it would be to invest funds in NBFCs, LP Agarwal, chief general manager of Punjab National Bank said, “If someone is depositing in the stronger NBFCs such as Sriram Finance and Tata Finance, among others, the risk is comparatively lower. But, in general, depositing in NBFCs is risky and one should keep in mind that who is in the management team and their balance sheet, among other things.”

According to H S Saini, general manager, Corporation Bank, “Banks provide higher flexibility to customers. One can break one’s deposit in case of need. But, NBFCs generally do not allow that. Hence, until the interest rate differentials are very substantial, banks deposits are better bets even with lower interest rates”.

SBI raised interest rates on corporate loans after reducing deposit rates

2009-10-21T02:55:00.000-07:00

Two days back country’s largest lender the State Bank of India (SBI) reduced its deposit rates aggressively. Now the bank has started increasing interest rates on corporate loans by up to 50 basis points.

This measure is a part of bank’s strategy to make sure its net interest margin (NIM) - improves over the next few months.

Net interest margin (NIM) is the difference between the cost of funds and the interest earned.

By June-end bank NIM has dropped to 2.30 per cent, is trying to attain back the 3 per cent comfort zone. Bank executives informed that the lender is expecting NIM to be at 2.55-2.6 per cent by the end of current financial year.

Last year st the peak of the financial crisis bank had mopped up over Rs 1,000 crore-a-day has reduced deposit rates half-a-dozen times during the current financial year. For retail deposits of up to Rs 1 crore, the peak term deposit rate was reduced by 300 basis points to 7.5 per cent over the last 12 months; however it slashed the prime lending rate by 200 basis points to 11.75 per cent.

It is believed in this period the cost of funds will take time to reflect the changes due to sharp slowdown in credit demand which has affected SBI's interest income.

The impact of cut in lending rates on interest income will be visible immediately, whereas the benefit of reducing deposit rates will be visible gradually. According to bank executives the subdued NIM is the reflection of the decline in the credit –deposit (C-D) ratio.

While in September 2008 the high margin was possible as the C-D ratio was 71-72 per cent. but now because of slowdown in credit offtake and fallout of the global financial crisis the ratio has dropped to 67 per cent. A senior SBI executive stated, "Nothing drastic can be done on the interest income side in the short run".

Thus due to subdued credit off-take it became possible for the bank to rework on rates being offered to large companies and mid-size companies in the second quarter. An executive informed, "We have been able to increase lending rates by up to about 50 basis points, especially for those companies that have come up for repricing". The banks are using reset clause in loan agreements to reset interest rates.

The banks say this measure should help in raising up margins marginally. It is believed as the credit off-take continue to rise in third and fourth quarters, the rate charged on fresh credit can be higher and that must boost margins.

Regarding the deposits the headroom available was limited. Also when the credit demand started picking up, liquidity in the system is expected to come down. Besides, the Reserve Bank of India will also start taking measures as part of its strategy to shift to a tighter monetary policy regime. Moreover SBI and other banks will have to raise their rates to counter competition from other asset classes as even the stock market has started showing signs of improvement.

The SBI executives are of view that even though they have to increase rates for retail depositors, the bank’s measures to offer high rates last year has proved helpful in lowering their dependence on high-cost bulk deposits.

To reduce dependence on bulk deposits, the bank introduced a 1,000-day deposit scheme in October 2008, under which it offered 10.5 per cent interest rate with an aim to garner retail resources. But now the bank has withdrawn this scheme.

SBI reduced rate on 1000-day deposit scheme only

2009-09-10T04:38:00.000-07:00

Country’s largest bank, State Bank of India (SBI) has reduced its interest rate on its special 1,000 day fixed deposits with an aim to protect its net interest margin. The bank has reduced rates on 1,000-day deposit scheme by 25 basis points to 7%. With this reduction the SBI deposit rates will be at par with other public sector banks in the industry. The bank has not introduced cut on any other time slab. The revised rates will be effective from September 8.

Since the launch of 1000-day deposit scheme SBI has witnessed maximum collection thus with the cut in the rates in this scheme bank will be able to reduce its interest cost considerably. Earlier SBI was offering 7.25% on its 1000-day scheme which was slightly higher in comparison to the rate being offered by most of its peers in the industry for that period (for 1000 day or between two to three years).

Whereas most of the large banks had reduced their deposit rates few weeks back. Big banks like Union Bank of India, Punjab National Bank and ICICI Bank are offering 7% for two to three years (which is comparable to 1000 day deposits), while Bank of Baroda has reduced rates to 6.5% and HDFC Bank is offering 6% for the same period.

According to bank analyst SBI’s margin- the difference between the cost of funds and yield on advances, have been under pressure due to slowdown in credit growth. For quarter ending June 09, bank net interest margin stood at 2.3%, which is down by 63 basis points over March 09. Earlier SBI officials had given indications that in the second quarter no significant improvement can be expected in the margins.

Recently in an interview with media, O P Bhatt had stated that due to poor demand in credit SBI has been parking over Rs 65,000 crore daily with the Reserve Bank of India’s reverse repo window which gives a return of 3.25%.

Tata Motors to raise funds by re-launching fixed deposit scheme

2009-09-02T05:19:00.000-07:00

Tata Motors is again announcing fixed deposit (FD) scheme to raise up to Rs 1,500 crore. The company will be launching the scheme for shareholders and the public. Tata Motors chairman Ratan N Tata at the annual general body meeting of the company in Mumbai informed shareholders, “We will just be announcing the revised FDs scheme.”

Addressing the reporter after Tata’s AGM with shareholders, Tata Motors chief financial officer C Ramakrishnan said, “Till now we have raised around Rs 2,500 crore through the existing FD scheme. After the new accounting norms that came into effect from April 1, the cap on borrowings through fixed deposits has gone up from Rs 2,700-Rs 2,800 crore to Rs 4,000 crore. So now we can raise additional funds through the deposit scheme.

The revised scheme will open for shareholders and public on Wednesday.”

Currently Tata Motors is giving 8.75 per cent interest on deposits of Rs 20,000 for a period of three years. The company’s aim to launch FD scheme was to raise funds to repay the $2.3 billion bridge loan after the possession of Jaguar and Land Rover in 2008. Later on company reduced the interest rates on cumulative fixed deposits of Rs 20,000 for three years from 12 per cent to 8.75 per cent.

The industry officials informed that Tata Motors is likely to increase the rate of interest up to a competitive level of Mahindra Finance’s ongoing scheme. Mahindra Finance is offering 10 per cent interest on a minimum deposit of Rs 10,000 for a period of three years. However most of the public and private sector banks have recently reduced their deposit rates. India’s top two banks - State Bank of India and ICICI Bank are offering interest rates around 7.25 per cent to 7.5 per cent on fixed deposits with five-year maturity.

An analyst with Mumbai-based brokerage informed Tata Motors is likely to invest the funds being raised through FD scheme, to meet the capital expenditure and technology up-gradation requirements of the company and JLR

IDBI Bank revised interest rates on deposit, auto loans

2009-08-13T03:35:00.000-07:00

IDBI Bank announced cut in interest rates on deposits by 25 basis points to 50 basis points (quarter to half a percentage point) across different maturities. The revised rates will come into effect from August 12.

The bank has also reduced 1% point in lending rates for auto loans.

The bank for up to six months did not change rates for deposits and all changes are for duration beyond six months. In most of slabs, the reduction is only 25 basis points, or quarter of a per cent, but in case of a few slabs, the drop is 50 basis points, or half a per cent.

While the interest rate for deposit of one year to two year will be 6.75 per cent against 7.25 per cent at present.

The bank is offering the highest rate of 8% for deposits for the duration of seven to 10 years.

The bank has also revised its lending rate on auto loans and has reduced it down by one percentage point. As per revised fixed rate of interest for a three year tenor will range from 10.50 per cent-12 per cent and for five years between 10.75 per cent and 13 per cent.

Bank unions say: ATMs are part of banking network, so can’t operate

2009-08-13T02:59:00.000-07:00

The public sector banks are on strike for two days due to which all the banking transactions have come to stop for two days. On Wednesday when a call for strike was made the ATMs were not included in the strike so most of the banks had loaded their ATMs so that public don’t find difficulty in case of cash. But on Thursday first day of the strike the union forcefully got most of the ATMs in the city including off-sites shutdown.

Thus on the second day the few that will be opened might run out of cash. SBI spokesperson informed in Kolkata most of its 260 ATMs remained closed due to the strike. He said, "We had refilled money but could not operate the ATMs due to protest by strikers". An Axis bank official also gave the same reason however ICICI bank spokesperson stated that they had closed the ATMs due to security reasons.

Most of the banks with large ATM networks had loaded most of their ATMs on Wednesday evening but bank union people forced the security guards to shut down the ATMs shutters of majority of onsite and off-site ATMs. Bank unions justifying the shutdown of ATMs Ashok Mukherjee, secretary of SBI Staff Association said, "ATMs are part of banking network. So, they can't operate during a bank strike". He added, "We have no option as IBA and the Centre have refused to listen to our demands."

He pointed out the 29 PSU banks are having a consolidated net profit of Rs 33,000 crore, then also they are not ready to contribute Rs 4,200 crore to the pension fund of bank employees. The United Forum of Bank Unions is demanding 20% hike in salary but IBA is giving a hike of 17.5%.

Therefore today being the second day of strike people will probably find difficulty in getting cash from ATMs.

Fixed deposit scheme to encourage girl education at primary level

2009-07-31T03:14:00.000-07:00

In India government on its level has been making efforts to encourage parents of the girls belonging to lower strata of the society to send them to school. Working on this line BMS in order to encourage girl students complete their primary school will be providing a fixed amount of Rs 1,000 and would double the amount on completion of the education.

Till now the civic body was giving an allowance of Re 1 per girl child for attending the class every day. But now it has suggested a fixed amount scheme. In civic-run schools mostly students are from lower strata of the society or slum areas that often do not complete their primary education resulting in high dropout rate. In a hope that financial incentive will be able to lure parents and children to complete their primary education the civic administration has suggested a fixed amount scheme.

Instead of attendance allowance under the new scheme at the time of enrollment in class I, a fixed deposits of Rs 1,000 will be made in Indian Bank which will get doubled when the girl student completes her primary education till class VII. In the scheduled bank savings account will be created in the name of the student in which the money will be deposited.

This scheme will be started from financial year 2009-2010 and approximately 42,750 girls who enrolled in the first standard for this academic year will be benefited from the scheme. The proposal has been approved by the education committee and an amount of Rs 4.27 crore has been sanctioned. While in the on going scheme the BMC used to give Re 1 to girl students for a day’s attendance and by the end of each academic year a maximum of Rs 210 (for 210 working days) was credited in their account.

Short-term FD has lower interest rate than savings a/c

2009-07-02T00:49:00.000-07:00

Almost all the banks have slashed their fixed deposit rates. After this revision the interest banks are offering on the tenure between a month and 45 days is lower than the 3.5% minimum savings bank rate and some of the banks are not even giving any interest on short-term maturities.

Therefore at this time it is better to keep money in the savings bank account rather than investing in fixed deposits.

For instance amongst the private sector banks HDFC Bank is giving a 2.25% interest on deposits below Rs15 lakh for 15 to 29 days and only a 3% interest on deposits kept for 30 days to 45 days.

While the ICICI Bank is not giving any interest on deposits for 7 days to 14 days and offers only a 3.25% interest for deposits maturing between 15 and 45 days.

Whereas amongst the public sector banks State Bank of India (SBI) is offering only a 3% interest on deposits maturing in 15-45 days.

The savings bank account rate is fixed by the government therefore it can not be changed by the banks whereas it’s not the case with deposit rates.

Anindya Mitra, senior vice-president, retail liabilities, HDFC Bank explained, "We may think that the savings rate has to come down but we can't tinker with it and why should we pay more than 3.5% for short-term money when we can borrow one day funds from the inter-bank call market at 3%". Mitra added that companies, funds and high net worth individuals having huge amount generally invest funds in these tenures.

He stated, "For companies, it's still the better option to keeping huge chunks of money in current accounts at 0%. Some companies which do not even have a bank account open an FD".

On the minimum maturity period if you invest more money the banks give less interest. For instance ICICI Bank, offers only 1.5% interest on deposits from Rs15 lakh to Rs1 crore in the 7-45 days' tenure. While Canara Bank offers 1% for deposits of more than Rs1 crore for seven to 14 days and only 2% for deposits kept for 15 to 30 days.

Regarding offering very low interest rate on minimum tenure bankers say that there is enough liquidity in the system therefore they don't need short-term cash. According to SBI official, "These funds were used to give short-term bridge loans for companies just before their actual loans were being passed. These loans were in demand, particularly when the economic growth was brisk, but now that's not the case".

Govt. in favor of new tax-saving scheme to tap ‘idle money’

2009-07-01T23:35:00.000-07:00

The government is thinking over of introducing a new tax-saving scheme to collect 'idle money' kept with households and elsewhere in the system mainly for building funds for infrastructure.

According to sources the tax benefits offered may be on investments up to Rs 5lakh and be involved in somewhat meeting the country's infrastructure funding needs, which have been gauged at as high as $750 billion.

The scheme can provide multiple purposes including giving additional tax benefits to the public, channelizing the huge amount of money lying idle in saving accounts or with households for productive means, and this will also not add to the fiscal deficit, the sources said.

The sources added the government has already made an announcement of borrowing program of over Rs 3,00,000 crore for the current fiscal and if further there is any increase the liquidity will be made available to the drying up private sector and also add to the expansion of fiscal deficit.

Various sectors have been demanding for tax benefits for citizens and also garnering alternative resources for meeting the government's spending needs.

At present, collective tax benefits are being offered on an investment of Rs one lakh in insurance, pension schemes, bonds, mutual funds, children's education and housing loans, etc. An additional benefit of up to Rs 1.5 lakh is given only for housing loan interest payments.

As per Planning Commission approximation, the country would require around $500 billion for the building up of infrastructure during the remaining period of the 11th Plan (2007-12).

According to country top private sector bank ICICI Bank's Chairman K.V. Kamath the capital need for the infrastructure sector will be even higher, at $750 billion, over the next three years.

Meanwhile the policymakers have supported spending most of the money set for infrastructure as quickly as possible in the remaining years of the current five-year plan.

Financial services major Reliance Money's CEO Sudip Bandyopadhyay points out any such initiative will be welcomed from the government in case it launches some sort of infrastructure bonds that can offer tax benefits of up to Rs five lakh in the Union Budget.

Rates on small saving schemes to be reduced by 50-75 basis points: Govt

2009-06-22T04:53:00.000-07:00

It is very rare you get to see an advertisement of small saving schemes but then also more people invest in these schemes in comparison to bank deposits the reason being the interest given on these schemes and savings plans are tax free. But now these schemes won’t be as attractive as government is planning to reduce the rates on small savings scheme by 50-75 basis points to increase the bank deposits. Earlier in 2003 the rate was reduced by 100 basis points to the current eight percent. Government is thinking of setting up a committee headed by the former governor of RBI which will study the issues and recommend appropriate steps.

Analysts point out that in case the banks slash the deposit rates beyond a certain limit, then investors can get diverted towards small saving scheme. Therefore banks are abstaining from cut in the deposit rates. The industry experts say the reduction in deposit rates might not help in cut down of the lending rates also.

Some of the major small saving schemes are National Saving Certificates, Post Office Savings Account, Public Provident Fund, Kisan Vikas Patra, and Senior Citizen Savings Scheme. These saving schemes are in competition with the bank deposits as they have tax benefits under Section 80 C of the Income Tax Act.

Forum directed ABN AMRO bank to compensate for wrongly billing

2009-06-17T04:45:00.000-07:00

The ABN AMRO bank has been directed by the district consumer forum bench comprising president TN Vaidya and member Rajesh Kumar to pay compensation and litigation costs worth Rs 6,000 for wrongly billing a resident, thus causing an undue harassment to the complainant.

The complainant Kanwal Khurana in his complaint alleged that he had opened a current account and got a credit card from ABN AMRO Bank by paying Rs 22,412 for using the credit card vide demand draft dated May 30, 2006. On 16.6.2006 the amount was credited to the account of ABN AMRO Bank.

But in spite of this the bank continued charging late payment charges and interest regularly in his statement. He stated in order to settle the matter in cordially manner he made a complaint to the bank on 28-11-2006 then also bank did not take any corrective measures.

The complainant appealed before the forum that the bank should be proceeded under the
the Consumer Protection Act for causing harassment. Bank did not defend its case in the forum therefore it was proceeded ex parte and the forum after hearing the arguments of the counsel for the complainant and scrutinizing the evidence presented by him, apprehended the bank guilty.