3 min readMumbaiApr 10, 2023 02:53 PM IST
First published on: Apr 10, 2023 at 04:37 AM IST
In the current rate hike cycle which began in May 2022 and saw a 250-basis-point (bps) hike in the repo rate, banks have almost kept interest rates on savings deposits unchanged.
However, they have raised term deposit rates during this period.
“The increase in term deposit rates in the current tightening cycle has exceeded that in lending rate. Savings deposit rates of banks – which are a third of total deposits – have, however, remained almost unchanged in the current tightening period,” according to the Reserve Bank of India’s (RBI) Monetary Policy Report (MPC) for April, released last week.
This has moderated the increase in lenders’ overall cost of funds and helped in improving their net interest margins (NIM), the report said. The net interest margins – the difference between the interest earned by a bank and the interest it pays – of banks improved to 3.73 per cent as of December 2022 from 3.44 per cent as of December 2021.
In March 2023, while term deposits constituted 58.5 per cent of aggregate deposits of scheduled commercial banks (SCBs), current account and savings account deposits were 8.9 per cent and 32.6 per cent, respectively.
State Bank of India (SBI) kept its interest rate on savings bank accounts at 2.7 per cent from May 31, 2020. However, the lender raised the interest rate on savings accounts with balances of Rs 10 crore and above by 30 bps to 3 per cent from 2.7 per cent, effective October 15, 2022.
ICICI Bank has been offering an interest rate on savings bank accounts with balances below Rs 50 lakh at 3 per cent since June 4, 2020. For balances above Rs 50 lakh, the savings account interest rate offered is 3.5 per cent.
Another private sector lender HDFC Bank’s savings account interest rate has been kept at 3 per cent for balances less than Rs 50 lakh since June 2020.
Savings accounts are maintained for both transaction and savings purposes mostly by individuals and households. A savings account, being a hybrid product, provides the convenience of easy withdrawals, writing/collection of cheques and other payment facilities as well as an avenue for parking short-term funds which earn interest. The interest rates on savings bank deposits were deregulated by the RBI from October 2011. This gave lenders freedom to determine their savings bank deposit interest rates.
According to RBI’s MPC, the transmission of the repo rate hike to retail deposit rates gathered pace in the second half of fiscal 2022-23 after remaining subdued in April—September 2022 as banks intensified their efforts to garner retail deposits to fund robust credit growth.
The weighted average domestic term deposit rate (WADTDR) on fresh deposits (including retail and bulk) increased by 222 bps during May 2022 to February 2023. During H1 FY2023, banks had focussed on mobilising bulk deposits, which was reversed in H2 with the increase in fresh retail deposit rates (122 bps) outpacing that in fresh bulk deposit rates (77 bps).
The report added banks revised upwards their external benchmark-based lending rates (EBLRs) by 250 bps during May 2022- March 2023 in tandem with the 250 bps increase in the policy repo rate. The marginal cost of funds-based lending rate (MCLR) – the internal benchmark for loan pricing – rose by 140 bps over the same period. The weighted average lending rate (WALR) on sanctioned fresh rupee loans increased by 173 bps and that on outstanding rupee loans by 95 bps during May 2022 to February 2023, the report said.
The net interest margins – the difference between the interest earned by a bank and the interest it pays – of banks improved to 3.73 per cent as of December 2022 from 3.44 per cent as of December 2021. 
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