Bank of India the state-owned bank is offering 0.25% extra interest on long-term deposits. The depositors who are willing to put money in the bank’s floating rate deposits can avail this offer. The bank will reset the rate of such deposits, in the beginning of each quarter, linked to the bank’s term deposits.
Bank of India is one among the few commercial banks who are offering floating deposits but not all of them are offering term deposit rates as a benchmark for such deposits. Some banks are using profits on government securities, mainly 10-year bonds and 364-day Treasury bill, as the benchmark rates for such deposits.
The floating rate goes up with rise in interest rate therefore there aren’t too many takers of such deposits. On the other hand the banks are also not selling the product aggressively.
Banks are not garnering such deposits because they will have to pay higher interest rates in the future if the benchmark rate goes up. The depositors too are not excited about this product, as are for term deposits, because floating deposits has a freeze and if the depositors want to redeem the deposits before maturity, they will have to pay penalty by way of a sharp reduction in returns. In addition to this there is uncertainty of return on such deposits if there is any change in floating deposit rates.
“The product is yet to pick up in India. Retail depositors want a clear idea of what they are getting when their deposits mature. Floating rate deposits do not give that certainty,” said B. Sambamurthy, chairman and managing director of Corporation Bank.
The Reserve Bank of India, or RBI, have given the approval for offering floating rate on deposits six years ago, in 2002, when some banks and financial institutions started redeeming deep-discount bonds which were floated in mid-1990s when interest rates have gone up.
The long-tenure bonds had a maturity period between 15 and 21 years, on it the bank offered 14-15% interest rates to consumers. To these bonds “call” and “put” options were attached which allowed both bond holders and lenders to redeem the bonds at regular intervals. At that time the “call” option was used in the beginning of the century by most of the lenders when the interest rates had dropped sharply, in order to cut the cost of deposits.
After going through this experience, banks are not ready to lock themselves in for long-term deposits therefore there very few banks offering fixed deposits beyond three years.
While the banking regulator wanted to solve the problem by giving the banks right to offer floating deposits and also by giving them flexibility for fixing the cost of such deposits. According to bankers, who do not wish to be named, the aim behind introducing the floating deposit rates was to protect banks from long-term high-cost liabilities rather than giving customers a new instrument.
Moreover, even the customers have shown interest in this product even though it is mentioned in most banks’ product portfolio.
“The timing of the product launch was wrong. It got a beating that time and is yet to recover,” said a senior public sector banker who does not wish to be named. In mid-2002, the profit on benchmark 10-year paper was revolving around 7.65% but by the year end it closed at 6.08%. In October 2003 it further dropped below 5%. When the viewpoint on interest rates is clear, people do not wish to go for floating deposits.
Although in a rising interest rate conditions floating rate deposits seems to be attractive but the profits on the 10-year government paper may be anything but it is stable. In the beginning of the calendar year 2008 the profit on the benchmark 10-year paper, was 7.76% which has now dropped to 9% and had touched 9.5% in July.
“The floating rate deposit scheme did not evoke much response as expected because customers want certainty of a steady cash flow,” said an official of India’s oldest mortgage lender, Housing Development Finance Corp. Ltd, one among the few institutions that launched a floating rate deposit scheme in early 2004. “A steady cash flow is the key reason why people go for fixed deposits.”
Some of the banks have introduced flexi-deposit rate schemes so that floating deposit rates look attractive. For instance Exim Bank of India is offering a deposit scheme under which customers will get the benefit of rising interest rates, but will not get affected when the rates come down. This year, three-year and five-year floating deposits have been launched which are benchmarked to give profits in comparison to maturity government bonds.
“Traditionally, consumers want to crystallize income into a steady cash flow and generally won’t like to take risk of a floating rate system.” said Shankarnarayan R. Rao, executive director of Exim Bank.
“We welcome this product as it gives a better hedge and helps us tackle asset-liability mismatches. But for a customer, who wants to bet on uncertainties, investment in equities is a more attractive option,” said a general manager with a large public sector bank who does not wish to be named.
However banks are quite hostile while selling floating rate loans. On more than 70% of home loans banks have given floating rate loans and interest rates changes with the change in their benchmark lending rate.
Thursday, August 28, 2008
Thursday, August 21, 2008
Canara bank revised its term deposit rates
Canara Bank has increased its term deposit interest rates ranging from 25 to 50 basis points for different tenors with effect from Tuesday, August 19.
The bank sources informed the fixed deposits having tenors of one year and up to 499 days will get an interest of 9.75%, up by 25 basis points.
For the deposits for more than 500 days, rate has been raised by 50 basis points, for tenor up to two years rate is up to 10%, while for the above two years and less than three years tenor the rates have been revised by 25 basis points to 9.75% from 9.50%.
The rates for tenors of three years to less than five years and above five years have been revised at 9.50%, an increase of 50 basis points. The bank has also revised interest rates for senior citizens; it will be offering 50 basis points. If you're looking to invest in fixed deposit just make sure to check Canara bank fixed deposit as they are offering some outstanding schemes for senior citizens.
The bank sources informed the fixed deposits having tenors of one year and up to 499 days will get an interest of 9.75%, up by 25 basis points.
For the deposits for more than 500 days, rate has been raised by 50 basis points, for tenor up to two years rate is up to 10%, while for the above two years and less than three years tenor the rates have been revised by 25 basis points to 9.75% from 9.50%.
The rates for tenors of three years to less than five years and above five years have been revised at 9.50%, an increase of 50 basis points. The bank has also revised interest rates for senior citizens; it will be offering 50 basis points. If you're looking to invest in fixed deposit just make sure to check Canara bank fixed deposit as they are offering some outstanding schemes for senior citizens.
Tuesday, August 19, 2008
Corporation Bank launched 'CorpGain' special deposit scheme
Corporation Bank launched 'CorpGain' a special deposit scheme. This new scheme is for a limited period i.e., for a fixed period of 330 days. The Corporation Bank today launched a special deposit scheme for a fixed period of 330 days that will earn an interest rate of 10 per cent.
The interest rate offered is 10 per cent. Bank sources informed that the interest rate will be applicable for a minimum deposit of Rs 25,000 and less than Rs 15 lakh only. It added the senior citizens will be offered 0.5 per cent more than the normal rate.
The interest rate offered is 10 per cent. Bank sources informed that the interest rate will be applicable for a minimum deposit of Rs 25,000 and less than Rs 15 lakh only. It added the senior citizens will be offered 0.5 per cent more than the normal rate.
Thursday, August 14, 2008
Banks giving 10% interest rate on special FDs
Banks are raising deposits (FDs) rates; therefore investors looking for option for investment of their hard earned money can go for FDs. Since January the stock market is continuously unstable, at present it is not safe to invest in stock market.
It is for the first time in 10 years that banks are giving 10% interest rate on special FDs.
In July the Reserve Bank of India raised interest rates which means banks are in desperate need of funds, which has forced them to offer extremely attractive interest rates on fixed deposits.
Few days back State Bank of India, the largest bank in the country, has hiked fixed deposit rates. Bank has announced a 0.25-0.75% increase in fixed deposit rates effective Saturday. You may check SBI FD Rates here the latest interest rates chart.
Therefore SBI will now be giving a 10% return on a one-year fixed deposit, up from 9.50% earlier.
ICICI Bank and HDFC Bank the two big private sector banks have already announced hikes in deposit rates after the RBI hiked rates on July 29.
ICICI Bank is offering 10% interest for a special tenure of 390 days. HDFC Bank offers 10% on deposits kept for 1 year, 15 days.
Senior citizens will get 0.50% additional interest.
It is for the first time in 10 years that banks are giving 10% interest rate on special FDs.
In July the Reserve Bank of India raised interest rates which means banks are in desperate need of funds, which has forced them to offer extremely attractive interest rates on fixed deposits.
Few days back State Bank of India, the largest bank in the country, has hiked fixed deposit rates. Bank has announced a 0.25-0.75% increase in fixed deposit rates effective Saturday. You may check SBI FD Rates here the latest interest rates chart.
Therefore SBI will now be giving a 10% return on a one-year fixed deposit, up from 9.50% earlier.
ICICI Bank and HDFC Bank the two big private sector banks have already announced hikes in deposit rates after the RBI hiked rates on July 29.
ICICI Bank is offering 10% interest for a special tenure of 390 days. HDFC Bank offers 10% on deposits kept for 1 year, 15 days.
Senior citizens will get 0.50% additional interest.
Tuesday, August 12, 2008
Fixed Deposits favorite among investors
After April the return levels on fixed deposits have increased up to 15-20%.
Banks have raised interest rates of fixed deposits therefore individuals have started investing money in fixed deposits (FDs), as the earnings have gone up by 15-20 %.
Hindustan Unilever employee Sachin Shah, 28, has found investing in FDs more profitable therefore in the last five months he has invested Rs 5 lakh in FDs. On new deposits he will earn around 9.5 per cent since he has invested for a one-two year term, compared to 8.25-8.75 per cent he will earn on the Rs 8 lakh he had deposited earlier.
Annually he will earn around Rs 50,000 on Rs 5 lakh deposit as compared to Rs 42,000 which he would have earned till April.
In July the central bank has tightened monetary policy by increasing repo rates, or the rate at which it lends, and cash reserve ratio, or the proportion of deposits that banks have to set aside, since then banks have been increasing lending rates by up to 100 basis points, but many banks have not increased deposit rates by the same scale.
For instance, State Bank of India has raised its prime lending rate by 100 basis points, but have increased deposit rates only by 25-75 basis points.
Many big banks including Axis Bank, Bank of Baroda, Union Bank of India and mortgage player HDFC, have not changed deposit rates to ensure better net interest margin. These banks have not given any indication regarding the increase in deposit rates.
“Deposit rates are market-driven and more dynamic. We can change it later as well,” said a bank chief.
While Partho Mukherjee, Axis Bank’s treasury head, said, “To be in competition, banks need to keep a close watch on deposit rates. Our assets and liability committee (Alco) will first see the impact of the recent rise in deposit rates by other banks. Before a further upward revision in interest rates on our FDs, we will assess the reaction of investors.”
The instability in the stock market has made FDs favorite for investments.
“I stopped investing in equities after January when the markets started falling. Moreover, FDs are very attractive. Now, I invest 40-50 per cent of my savings in FDs, and mostly in maturities of 15 months, because the best interest rates are offered on these tenures,” said Shah.
Banks have raised interest rates of fixed deposits therefore individuals have started investing money in fixed deposits (FDs), as the earnings have gone up by 15-20 %.
Hindustan Unilever employee Sachin Shah, 28, has found investing in FDs more profitable therefore in the last five months he has invested Rs 5 lakh in FDs. On new deposits he will earn around 9.5 per cent since he has invested for a one-two year term, compared to 8.25-8.75 per cent he will earn on the Rs 8 lakh he had deposited earlier.
Annually he will earn around Rs 50,000 on Rs 5 lakh deposit as compared to Rs 42,000 which he would have earned till April.
In July the central bank has tightened monetary policy by increasing repo rates, or the rate at which it lends, and cash reserve ratio, or the proportion of deposits that banks have to set aside, since then banks have been increasing lending rates by up to 100 basis points, but many banks have not increased deposit rates by the same scale.
For instance, State Bank of India has raised its prime lending rate by 100 basis points, but have increased deposit rates only by 25-75 basis points.
Many big banks including Axis Bank, Bank of Baroda, Union Bank of India and mortgage player HDFC, have not changed deposit rates to ensure better net interest margin. These banks have not given any indication regarding the increase in deposit rates.
“Deposit rates are market-driven and more dynamic. We can change it later as well,” said a bank chief.
While Partho Mukherjee, Axis Bank’s treasury head, said, “To be in competition, banks need to keep a close watch on deposit rates. Our assets and liability committee (Alco) will first see the impact of the recent rise in deposit rates by other banks. Before a further upward revision in interest rates on our FDs, we will assess the reaction of investors.”
The instability in the stock market has made FDs favorite for investments.
“I stopped investing in equities after January when the markets started falling. Moreover, FDs are very attractive. Now, I invest 40-50 per cent of my savings in FDs, and mostly in maturities of 15 months, because the best interest rates are offered on these tenures,” said Shah.
Wednesday, August 6, 2008
New-age Yes Bank increased fixed deposit rates
Yes Bank a new-age private sector lender has increased its fixed deposit interest rate by 0.25 for time period of one year and one day up to 18 months to 10 per cent from the earlier 9.75 per cent
According to bank press release senior citizens will now earn a return of 10.50 per cent as against the existing 10.25 per cent. The revised rates have come in to effect from August 1.
Bank has also hiked its interest rates on fixed deposits for time period ranging from six months 1 day to 2 years.
Yes Bank Managing Director and CEO Rana Kapoor said, "The bank has been observing keen interest among customers to invest in deposit products and we believe this trend will sustain given the safety, security, liquidity and flexibility provided under the bank's deposit program".
Bank has also hiked its benchmark prime lending rate (BPLR) by 0.50 per cent to 17 per cent and have come into effect from August 1.
According to bank press release senior citizens will now earn a return of 10.50 per cent as against the existing 10.25 per cent. The revised rates have come in to effect from August 1.
Bank has also hiked its interest rates on fixed deposits for time period ranging from six months 1 day to 2 years.
Yes Bank Managing Director and CEO Rana Kapoor said, "The bank has been observing keen interest among customers to invest in deposit products and we believe this trend will sustain given the safety, security, liquidity and flexibility provided under the bank's deposit program".
Bank has also hiked its benchmark prime lending rate (BPLR) by 0.50 per cent to 17 per cent and have come into effect from August 1.
Tuesday, August 5, 2008
Use FD funds to prepay floating loans
RBI tightened monetary policy by increasing repo rate by 50 bps to 9%. The cash reserve ratio has been increased by 25 bps to 9%. This move of RBI has pushed up interest rates across the board which is haunting the borrowers.
Therefore in case home loan rates rise, it is going to create a big hollow in the borrowers’ disposable income, which is already hit by inflation. While bond profits on 10-year government bonds rose to a high of 9.40%. In spite of rise in profits bank deposits to show negative returns after regulating for inflation.
In such a situation it would not be advisable to keep the money in bank deposits, when you have to pay high interest rate on a housing loan.
For instance you have taken a loan for your new home two years ago. As of now, you have a loan outstanding of Rs 20, 00,000 and the prevailing rate of interest is 12.25%, which is payable over the 20-year term of the loan. The EMI works out to Rs 22,371.
You also have an FD which has got matured and you will have a cashflow of Rs 1, 00, 000, keeping aside the accumulated interest. In case you have made an FD for one year at 9.75% you will make around Rs 10,000 one year.
In spite the higher rate of interest it is advisable to prepay your loan. In case bank do not charge penalty for early payment then prepayment can beat off almost 41 EMIs at one go, and this will bring down the loan payment tenure to 16 years and 7 months from 20 years. Like this you will save Rs 8,18,322
In the initial years of your loan, the EMI has higher interest component. Even though you pay 1% prepayment penalty, you will be paying off around 38 EMIs. That means, the tenure is reduced to 16 years 10 months and you do not pay Rs 7,59,922 in interest.
Now if you choose to use FD earning around Rs 10,000 at the end of one year, you will be paying Rs 2,43,637. Hence prepayment is a clear winner. Now the question arise does it make sense, to opt for a premature withdrawal of the fixed deposit with a bank? Yes, by all means.
The savings in interest payable are far more than the opportunity lost on FD interest. But you have to be quick in taking decision, because if your bank is faster than you in increasing the rate of interest, the benefits you can get out of prepayment will be moderate.
In case, when the bank increases the rate of interest to 12.75%, then what impact it has on your Rs 20,00,000 loan. For 20 years, the new EMI will work out at Rs 23,076 and if you chose to keep the amount of EMI constant at Rs 22,371, the tenure will extend to 24 years.
Also, if you plan to prepay after the rate hike, the benefit will be moderate due to high interest rates.
In fact, a segment of borrowers, who have raised fixed-rate housing loans when rates were low, can be in better off not prepaying. This segment includes those who are getting a higher rate on FDs than the fixed rate that they pay on home loans.
Another inducement not to prepay the loan will be to enjoy the deduction to maximum possible (Rs 1, 50,000). In such cases one must be flexible and keep a check on the loan outstanding and the interest component. Traditional knowledge, though, recommends a debt-free status.
Therefore in case home loan rates rise, it is going to create a big hollow in the borrowers’ disposable income, which is already hit by inflation. While bond profits on 10-year government bonds rose to a high of 9.40%. In spite of rise in profits bank deposits to show negative returns after regulating for inflation.
In such a situation it would not be advisable to keep the money in bank deposits, when you have to pay high interest rate on a housing loan.
For instance you have taken a loan for your new home two years ago. As of now, you have a loan outstanding of Rs 20, 00,000 and the prevailing rate of interest is 12.25%, which is payable over the 20-year term of the loan. The EMI works out to Rs 22,371.
You also have an FD which has got matured and you will have a cashflow of Rs 1, 00, 000, keeping aside the accumulated interest. In case you have made an FD for one year at 9.75% you will make around Rs 10,000 one year.
In spite the higher rate of interest it is advisable to prepay your loan. In case bank do not charge penalty for early payment then prepayment can beat off almost 41 EMIs at one go, and this will bring down the loan payment tenure to 16 years and 7 months from 20 years. Like this you will save Rs 8,18,322
In the initial years of your loan, the EMI has higher interest component. Even though you pay 1% prepayment penalty, you will be paying off around 38 EMIs. That means, the tenure is reduced to 16 years 10 months and you do not pay Rs 7,59,922 in interest.
Now if you choose to use FD earning around Rs 10,000 at the end of one year, you will be paying Rs 2,43,637. Hence prepayment is a clear winner. Now the question arise does it make sense, to opt for a premature withdrawal of the fixed deposit with a bank? Yes, by all means.
The savings in interest payable are far more than the opportunity lost on FD interest. But you have to be quick in taking decision, because if your bank is faster than you in increasing the rate of interest, the benefits you can get out of prepayment will be moderate.
In case, when the bank increases the rate of interest to 12.75%, then what impact it has on your Rs 20,00,000 loan. For 20 years, the new EMI will work out at Rs 23,076 and if you chose to keep the amount of EMI constant at Rs 22,371, the tenure will extend to 24 years.
Also, if you plan to prepay after the rate hike, the benefit will be moderate due to high interest rates.
In fact, a segment of borrowers, who have raised fixed-rate housing loans when rates were low, can be in better off not prepaying. This segment includes those who are getting a higher rate on FDs than the fixed rate that they pay on home loans.
Another inducement not to prepay the loan will be to enjoy the deduction to maximum possible (Rs 1, 50,000). In such cases one must be flexible and keep a check on the loan outstanding and the interest component. Traditional knowledge, though, recommends a debt-free status.
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