Banks attracting customers again with high deposit rates
By Neelima Shankar
Feb 26, 2010
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Indian banks are again on move to attract customers to deposit their money with them. The recent past had seen discouraging behavior from part of these banks owing to the surplus liquidity in the system.

With the RBI's move to suck out excess money from the economy using hike in cash reserve ratio as a tool, these banks are again back on track. As a result of this step, customers are in for a cakewalk.

Four big banks have declared a hike in deposit rates.

The largest private sector lender in the country, ICICI Bank has raised rates by 25-50 basis points on 390 days and 590 days deposits to 6.75 per cent.

Union Bank of India has also increased rates by 25-50 basis points for deposits tenoring 1-5 years. Earlier this week HDFC Bank declared hike in its fixed deposits by 150 basis points. IDBI Bank has been the leader in this trend.

Commenting on this issue, Paresh Sukthankar, ED of HDFC Bank emphasized, "I do believe excess liquidity in the system has been coming off partly with the CRR increase and partly with loan growth picking up. With the government's borrowing programme starts kicking off, again the excess liquidity will probably get absorbed. So, there could be some upward bias on interest rates both deposit and lending rates but the extent and timing, I think will be clearer a little while later."

However, an opinion contrary to these banks is held by none other than the largest bank in the country, State Bank of India. The bank has said that its interest rates will not increase till May-June.

"That may not happen till May-June till the liquidity surplus goes away from the system," O.P. Bhatt, chairman of SBI, said.

The banks are on this move because they want to borrow more and more money from customers. The reason behind this can be accounted to the fact that deposit growth of banks had fallen to as low as 17 %, a four year low and banks fear that despite sufficient liquidity the cash may dry up due to imminent policy tightening by the central bank and surge in demand for home loans.


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