'Fixed Deposit' Prices Turn Positive At 8% for the First Time in Many Years

In order to gather cheap deposits from customers, banks are now forced to give real interest rates on fixed deposits that beat inflation. State-run banks, led by Punjab & Sind Bank, are at the top of the list, paying a cool 8–8.5% annually.

Due to a funding shortage brought on by the credit expansion that has been outpacing deposit mobilisation for the entirety of this fiscal, banks are compelled to give inflation-beating deposit rates for tenors ranging from 200 to 800 days.

Despite a surprisingly high rate of retail inflation for January of 6.52 percent, fixed deposit pricing is still favorable for customers even at the lowest 7 percent. This is because actual rates are in the Additionally, the offer coincides with banks almost completely passing on the 250 basis point increase in the RBI rate since May of last year to their debtors while failing to do the same for deposits, creating a funding gap and forcing them to borrow from the market.

The new deposit pricing guarantees that any depositor of a public sector bank will receive fixed deposits with an average interest rate of 7 to 7.25 percent for tenors varying from 200 days to 800 days. With about 20,000 branches and the biggest retail franchise in the country, State Bank of India is providing fixed deposits in the amount of 7.10 percent for the general public and 7.60 percent for senior citizens on an annualized basis 400-day container.

For a 221-day bucket, Punjab & Sind Bank is providing the highest rate, at 8% for retail depositors and 8.50% for elderly citizens. While Union Bank of India prices its 800-day accounts at 7.30% and 7.80% for both retail and senior citizens, Central Bank of India offers the second-best rate at 7.85% for senior citizens for 444 days and 7.35% for retail. In comparison, Bank of Baroda's new pricing is 7.05% and 7.755% for 399 days, while Bank of India is providing the same rate as Punjab National Bank for retail and elderly citizens, respectively, on its 666-day bucket Bank of Maharashtra's revised rate is 7% and 7.50% for 200 days, compared to Bank of Baroda's for 444 days.

Canara Bank is offering 7.15 percent and 7.65 percent for deposits made for 400 days; Indian Bank is paying 7 percent and 7.50 percent for deposits made for 555 days; Uco Bank is offering 7.15 percent and 7.25 percent for deposits made for 666 days; and Indian Overseas Bank is providing 7 percent and 7.50 percent for deposits made for 444 days. However, the biggest private sector bank, HDFC Bank, only offers 7% to the general public and 7.50% to senior citizens who deposit money for five years, while its nearby rival, ICICI Bank, also offers 7% for retail for more than 15 months, and 7.5% for elderly citizens for more than 15 months.