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

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.”