Bank deposit rates: How the tide turned, in charts
1 min read 09 May 2023, 07:41 PM ISTSince May 2022, deposit rates have increased 113 basis points (bps), compared to 100 bps for loan rates, a Mint analysis shows.
PremiumBanks are increasingly paying more on deposits, reversing months of their trend of making loans costlier in response to repo rate hikes but slacking away on rewarding savers. Until December, repo rate hikes by the Reserve Bank of India (RBI) had been felt much more on the lending side than the deposits side, but depositors began getting their due in the March-ended quarter. The RBI had started hiking interest rates in May 2022, and the cumulative increase till February was 250 basis points (bps). Mint explains:
Since May 2022, deposit rates have increased 113 basis points (bps), compared to 100 bps for loan rates, a Mint analysis shows. This means that for every percentage point increase in the repo rate, deposit rates have increased 45 bps, more than 40 bps for loan rates. This is a major shift: until December, the transmission to the loans side had exceeded the deposits side.
Foreign banks have been the most aggressive in increasing deposit rates, with a 237-bps rise since May 2022. The figure for private and public sector banks was 111 bps and 104 bps, respectively. The shift is likely to have an impact on the profitability of banks. Rate hikes and faster repricing of lending rates have led to margin expansions, but banks are unlikely to see any further margin expansion on aggressive deposit rates resets in the near-term
But here’s the fine print. Banks were fast in raising lending rates both for outstanding loans and fresh loans. But for deposits, the rate increases have come only on fresh deposits, while outstanding ones languish. Average lending rates on fresh loans have risen sharply by 181 bps since May 2022.
