Commercial lenders are stepping up retail interest offerings as systemic liquidity plunged to around ₹1.96 lakh crore from a peak exceeding ₹11 lakh crore in early September. Bank of India followed an earlier move by Indian Bank by lifting select returns by up to 35 basis points. Meanwhile, intense competition for liquidity has pushed certificate of deposit rates above 8% for the first time since early 2023.
Key points
Shrinking cash reserves are compelling commercial banks to raise returns to attract and s…: Shrinking cash reserves are compelling commercial banks to raise returns to attract and secure domestic deposits.
The fading advantages of earlier FCNR (B) inflows are pressuring lenders to actively real…: The fading advantages of earlier FCNR (B) inflows are pressuring lenders to actively realign their liability profiles.
Aggressive central bank bond sales and variable reverse repo auctions have tightened broa…: Aggressive central bank bond sales and variable reverse repo auctions have tightened broader interbank market liquidity.
Sources checked by our analysis pipeline: 1
Bank of India (BoI) is the latest lender to raise its deposit rates which, unlike external benchmark-linked lending rates, would take time to head north despite the early-October start to the hardening cycle by the Reserve Bank of India (RBI). On Monday, BoI increased its deposit rates for maturities between one and below three years by 10 to 35 basis points, becoming the second bank in the current cycle to hike rates.
One basis point is 0.01 percentage point.
After the hike, one year deposit less than ₹3 crore will earn 6.60% interest, up from 6.50%, while one year to less than two years will earn 6.70% interest, up from 6.50%. The bank has also introduced a special 500-day deposit, which will earn 6.85%, from 6.50% earlier.
"The hike in deposit rates reflects higher cost of deposits in the system. Bulk deposit rates have gone up and the bank also has to adjust the liability profile in line with the higher interest rates," said a senior BoI executive. "On the whole, liquidity in the banking system has tightened as the…
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