Banks hike deposit rates by up to 50 bps

SBI also hints that it will be hiking its deposit rates some time in August-September

HDFC Bank raised deposit rates up to 75 basis points effective July 30, while Central Bank of India raised rates by 50 basis points effective August 1.

Lakshmi Vilas Bank & Allahabad Bank also raised deposit rates by 50 basis points, effective August 1.  One (1) basis point is equivalent 0.01percentage point.  State Bank of India (SBI) also hinted hiking deposit rates by about 0.25 per cent in August-September.  HDFC Bank announced raising rates of 91 days and 6 months deposits to 5.25 per cent from 4.5 per cent, while deposits with tenors of nine months to one year have new rates as 6.5 per cent as against 5.75 per cent. 

It is likely that other banks will also announce the deposit rate hike in due course.  Now that the banks have begun to raise deposit rates, it is only imperative that their cost of funds would go up soon.  As such, lending rates will have to go up sooner, though most banks have shown initial reluctance to hike the rates on the back of comfortable liquidity at present. Once the credit off-take picks up, banks will have to hike lending rates in home loan, auto and commercial loan segment, if not in housing immediately.  However, indications are that the mortgage major HDFC, which has been offering housing loans at 8.25 per cent fixed rate for the first year (up to March 2011) and second year at 9.0 per cent, may think of hiking the second year lending (fixed) rate by 25 basis points to 9.25 per cent.

Upward bias

“There is an upward bias on deposit rates. They should move up by August-September by at least 0.25 per cent,” SBI Chairman O P Bhatt told reporters on Wednesday.
“We expect credit to be dearer ... As credit demand picks up, we expect lending and deposit rates to go up.” RBI Governor D Subbarao had said after raising short-term lending (repo) and borrowing (reverse repo) rates by 0.25 and 0.50 per cent respectively.

Central Bank of India Chairman & Managing Director S Sridhar said “We have lost business for not lending below the base rate of 8.0 per cent, which we were doing it earlier.”  Responding to a poser, he said “As of now high cost deposit with us is zero.  We have gradually reduced it over a period.  We could have mobilized high cost deposits of up to Rs 5000 crore recently, which we have lost to other banks.”