Banks are increasing deposit rates to cope with high inflation

After the Reserve Bank of India had hiked repo rates by 0.25 percentage points the banks have started increasing deposit rates. A senior banker said this has led to rise in both the deposits as well as lending rates. Earlier banks had increased the lending rates. The increase in deposit rates is definitely going to bring cheers for depositors particularly for the retired persons and those who are mostly dependent on the interest income.

Banks sources informed that if needed the deposit rates may be revised upwards further, if inflation continues to rise. High rate of inflation affects the net return of a depositor on negative terms. Inflation at 8.75% has already considerably reduced net return of a depositor. It is understood that if inflation continues at the current rate, banks will be forced to revise both the lending as well as deposits rates upwards again.

Last month SBI had increased the deposit rates, following SBI, Oriental Bank of Commerce, Yes Bank and Bank of India have increased deposits rates by half a percentage point to one percentage point. Oriental Bank of Commerce has increased the rates for its special deposit scheme Asha Kiran (FDs for 400 days) to 9.75% for senior citizens. For the common man, the interest rate on 400-day deposits is 9.25%.

Yes Bank has increased the rates by 0.5 percentage points across all maturities. According to Yes bank sources, senior citizen depositors of Yes Bank will get a maximum of 10% on fixed deposits with a maturity of one year to 18 months. The others would receive 9.5% return.

SBI revised FD rates for 5-10 years by 0.5 percentage points to 9% while 3-5 years tenure was hiked by 0.35 percentage points. Senior citizens will get 0.5 percentages more.

Bank of India has also increased deposit rates up to 0.5 percentage point for various maturities. For maturities between one year and two years, the rates have been revised to 9.15%, against the earlier rate of 8.50%. For two to three years, the new rate is 9.25% as against earlier rate of 8.75%.

Similarly, fixed deposits of Bank of India of the maturity of three to five years will earn 9.50% interest, against the earlier 8.75%.

The sources said if the inflation continue to rise and crosses 10% mark, there will be another session of increase in the interest rates in the country.