<p>As the sharpest-ever rise in interest rates of about 200 basis points came in less than one year, depositors are busy ‘re-pricing’ (a banking term which means pre-close an existing FD to open a new one at a higher rate) their portfolio. Fearing flight of capital to others, banks are also forced to offer higher interest with every rate increase initiated by the RBI. Yet the party is not over as the RBI is soon expected to raise interest rates again. <br /><br />Considering the fact that stock market is in continued distress and mutual funds hardly generating any positive return, bank fixed deposit (FDs) is the flavour of the day for risk-averse investors. No wonder, deposit growth in the recent time outpaced credit growth as a result of surging deposit rates. <br /><br />Private banks offer more<br /><br />As per latest RBI data, in the fortnight to July 1, 2011 bank credit grew by Rs 85,833 crore over the previous period, while deposits grew by Rs 1,45,951 crore. Over a dozen private sector lenders, including cooperative banks, are offering FD interest rate to individuals ranging from 10.20 to 10.50 per cent per annum for a tenure of 1-2 years. <br /><br />Higher interest rates offered by private banks may be attractive, but then one will have to deal with uncertainty factor till deposit matures. However, for small deposit holders (of up to Rs One lakh), there is protection in the form of mandatory cover from the state run Deposit Insurance & Credit Guarantee Corporation (DICGC). For those not keen to take risk, both PSU banks and select private sector banks offer safer bet with interest of up to 9.75 per cent. For instance, State Bank of Mysore, State Bank of Patiala offer 9.75 interest per annum for short term deposits (1-2 years), where as State Bank of Travancore offers 9.60 per cent, while Syndicate Bank and Punjab & Sind Bank (both) offer 9.55 per cent. <br /><br />Among private players, Lakshmi Vilas Bank offers 10.50 per cent, Catholic Syrian Bank and Karur Vysya Bank offer 10.25 and 10 per cent, respectively, for 1-2 years tenure. Federal Bank offers 9.8 per cent while South Indian Bank and Development Credit Bank both offer 9.75 per cent. Of course, there are some cooperative banks like Tamilnad Mercantile Bank, Shamrao Vithal Cooperative and Maharashtra State Cooperative Bank offering interest between 10.20 and 10.35 per cent. <br /><br />“At the moment, deposit growth is very important for banks, as the credit deposit ratio is already high, and going forward, banks would need a strong deposit base if they want to continue to lend,” said Fortune Financials Research Analyst Hatim Brochwala.</p>
<p>As the sharpest-ever rise in interest rates of about 200 basis points came in less than one year, depositors are busy ‘re-pricing’ (a banking term which means pre-close an existing FD to open a new one at a higher rate) their portfolio. Fearing flight of capital to others, banks are also forced to offer higher interest with every rate increase initiated by the RBI. Yet the party is not over as the RBI is soon expected to raise interest rates again. <br /><br />Considering the fact that stock market is in continued distress and mutual funds hardly generating any positive return, bank fixed deposit (FDs) is the flavour of the day for risk-averse investors. No wonder, deposit growth in the recent time outpaced credit growth as a result of surging deposit rates. <br /><br />Private banks offer more<br /><br />As per latest RBI data, in the fortnight to July 1, 2011 bank credit grew by Rs 85,833 crore over the previous period, while deposits grew by Rs 1,45,951 crore. Over a dozen private sector lenders, including cooperative banks, are offering FD interest rate to individuals ranging from 10.20 to 10.50 per cent per annum for a tenure of 1-2 years. <br /><br />Higher interest rates offered by private banks may be attractive, but then one will have to deal with uncertainty factor till deposit matures. However, for small deposit holders (of up to Rs One lakh), there is protection in the form of mandatory cover from the state run Deposit Insurance & Credit Guarantee Corporation (DICGC). For those not keen to take risk, both PSU banks and select private sector banks offer safer bet with interest of up to 9.75 per cent. For instance, State Bank of Mysore, State Bank of Patiala offer 9.75 interest per annum for short term deposits (1-2 years), where as State Bank of Travancore offers 9.60 per cent, while Syndicate Bank and Punjab & Sind Bank (both) offer 9.55 per cent. <br /><br />Among private players, Lakshmi Vilas Bank offers 10.50 per cent, Catholic Syrian Bank and Karur Vysya Bank offer 10.25 and 10 per cent, respectively, for 1-2 years tenure. Federal Bank offers 9.8 per cent while South Indian Bank and Development Credit Bank both offer 9.75 per cent. Of course, there are some cooperative banks like Tamilnad Mercantile Bank, Shamrao Vithal Cooperative and Maharashtra State Cooperative Bank offering interest between 10.20 and 10.35 per cent. <br /><br />“At the moment, deposit growth is very important for banks, as the credit deposit ratio is already high, and going forward, banks would need a strong deposit base if they want to continue to lend,” said Fortune Financials Research Analyst Hatim Brochwala.</p>
