IOB revises deposit rates

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

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

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

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%

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

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

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.