FDs set to reclaim lost glory with double-digit returns

While the RBI's upward push to interest rates is making loans costlier for retail as well as corporate borrowers, it has also made bank deposits much more attractive, with an increase in deposit rates.

Ever since the RBI's last policy meeting late last month, where it raised its benchmark rates, forcing banks to hike their respective interest rates, almost all the banks have hiked their deposit rates. Another round of rate hikes could be in the offing next month, when the RBI is again expected to revise its benchmark policy rates upward.

The deposit rates have gone beyond 10 per cent already -- a level not seen in about a year -- for some banks, such as Lakshmi Vilas Bank, while most banks have raised their deposit rates to 9-9.5 per cent over the past one week.

In comparison, the one-year returns in the stock market, where risks are always higher and there is no guarantee of any returns, is currently languishing at much lower levels in most segments.

While the stock market's 30-stock benchmark index Sensex has gained about 13 per cent in the past one year, the performance has been much lower for broader indices. The BSE Mid-Cap index has gained about 4 per cent, while the Small-Cap index is up just about 1 per cent and the rise in the BSE-500 index is about 9.5 per cent.

On the other hand, Lakshmi Vilas Bank has raised its interest rate to 10.1 per cent for the general public and to 10.25 per cent for senior citizens for deposits with a tenure of between one and two years.

Housing finance major HDFC is also offering an up to 9.5 per cent interest rate under its HDFC Platinum Deposit Plan. Private sector majors ICICI Bank and HDFC Bank, as well as public sector lender SBI, are also offering up to 9.5 per cent deposit rates for senior citizens and up to 9 per cent for other customers.

Among others, PNB, Punjab and Sindh Bank, Oriental Bank of Commerce, Canara Bank and Bank of India have raised their deposit rates to up to 9.25 per cent. On the other hand, Union Bank has raised its deposit rates to up to 9 per cent and BoB to up to 9.1 per cent.

The rates for senior citizens for many of these banks are as high as 9.75 per cent.