One-month deposit rates hit 10%
The scramble for cash to meet year-end targets has made banks pay 10 % for even one-month deposits. According to bankers, the rates for such deposits may rise further, as certificates of deposit (CDs) worth Rs 1 lakh crore will come up for renewal in this month.
Deposit growth of commercial banks was 17 % for the year till February 11, lower than Reserve Bank of India’s projection of 18 %. The low interest rates which prevailed during the first half of the current financial year had made bank deposits unattractive. With high inflation, the real return to depositors was negative during much of the current financial year.
The rate for three-month CDs crossed 10 % last month. Market participants expected rates to cool after State Bank of India (SBI) decided to stop accepting CDs and bulk deposits above card rates. However, rates on three-month CDs have not come down, though they’ve remained stable. On Thursday, Syndicate Bank raised a three-month CD at 10.10 %, while Punjab and Sind Bank rose at 10.12 %.
On Thursday, banks raised CDs worth Rs 5,500 crore, while it was Rs 6,000 crore on the first day of the month, dealers said. In February, Rs 70,000-80,000 crore of CDs were issued.
Bankers also said Rs 1 lakh crore of CDs are up for redemption in March. “Most of the CDs that will be issued in March will be three-month and six-month,” said a dealer of a public sector bank. With liquidity continuing to be in deficit mode, market participants expect short-term fixed deposit rates to rise further during the current month.
Commercial paper hardens
Short-term loan rates for companies have touched double-digits, with one-month commercial paper (CP) rates at 10.25 % on Thursday.
“The volumes are thin due to the high interest rate. Some non-banking finance companies are raising money via one-month CP at this rate,” said a dealer. The rate on 90-day CP was around 10.35 %. The reason behind low volume is mainly due to the lower base rate of banks, 9.5 % for most. CP volumes reported during the fortnight ended January 15 were Rs 22,908 crore.
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