Repo rate hike pushes up bank deposit and debt rate

The RBI’s repo rate, the rate on which banks borrow debts from RBI, hike has begun to show its impact, as United Bank of India after Yes Bank has announced to hike the interest rate on Domestic Regular Term deposits, while some big banks are still following the wait-and-watch strategy.

The Kolkata based United Bank of India (UBI) on Monday announced to hike the domestic term deposit rates by 25 basis points (bps) to 75 basis points. The new interest rate for more than one year but less than two years would now be 8.5% as against the earlier 8.00 percent, while for the term deposit for more than two years but less than three years would now be 8.75% as against 8% earlier, a 0.75 % increase i.e. the biggest increment, which UBI has granted.

Besides, more than three years to less than five years, the banks would pay 8.50% of interest rate while for above 5 years tenure; UBI would pay only 8.25%. The term deposit rate was earlier 8% in both tenures. The interest rate for senior citizens would be 0.50 percent more in each term deposit category.

“For now, we have increased deposit rates for certain maturity brackets while keeping the prime lending rate unchanged,” said UBI chairman P.K. Gupta at a seminar in Kolkata. However, the bank has not hiked the Prime Lending Rate (PLR), the rate on which bank distribute the loans to the customers.

Earlier, a fast growing private bank, Yes Bank has announced to hike the deposit rates as well as PLRs both. It became the first bank to hike the deposit rates while in terms of hike in PLR, it was the second bank after Jammu & Kashmir Bank, which has already raised the PLR by 1% and new interest rate on credits was 14 percent that has been effective from last Thursday.

The Yes bank has hiked term-based deposit rate by 50 bps on 12-18 month tenure while senior citizen would get 10% for the same term. No changes have been made in other scheme.

The Banking top officials are reviewing these increments and waiting for RBI’s next quarter credit policy review that is schedule in July and after July, major banks like SBI, ICICI, HDFC, Bank of Baroda, Bank of India and others will decide their further steps.

The rising inflation and skyrocketing prices of crude oil is putting pressure on Banks to increase the deposit rates as the people will loss interest in less return, said an analyst.