Private lender ICICI Bank on Friday raised interest rates on fixed deposits of less than ₹2 crore and also on bulk deposits of up to ₹5 crore.

Term deposits with a maturity period of one year or more will now fetch 6.6% interest as compared with 6.1% earlier. FDs with tenure of over 15 months will fetch 7% interest, up 60 basis points.

The five-year tax saving fixed deposit which offers tax benefit under Section 80C of the Income Tax Act will now fetch 7% interest.

Senior citizens are offered 0.5% extra interest rate over and above the general rates.

For FD tenure of 185 days to 289 days, the bank is currently offering 5.50% interest compared with 5.25% earlier. An FD having tenure of 290 days to less than one year will now fetch 5.75% interest as against 5.50% earlier.

This comes days after the Reserve Bank of India’s monetary policy committee raised the repo rate – interest rate at which the RBI lends money to commercial banks -- by 35 basis points to 6.25%. The key policy rate has been raised by 225 bps since May 2022.

Following these rate hikes, mid-sized private sectors banks have shown an encouraging performance in terms of deposit accretion, according to India Ratings and Research (Ind-Ra).

The improvement is visible on two fronts - better overall deposit accretion and meaningful improvement in the share of current account savings account (CASA) deposits, says the rating agency.

While Ind-Ra believes credit growth will continue to outpace deposit growth in the remaining part of FY23, the gap between credit and deposit is likely to reduce in FY24, driven by a moderation in credit demand and likely improvement in the balance of payment account.

“Therefore, deposit accretion will continue, and scheduled commercial banks’ reliance on bulk deposits and borrowings would increase hereon. Moreover, banks will continue to use one to three-year buckets, given the largely short-term nature of credit demand,” says the ratings agency.

Mid-sized banks leading deposit rate increases

While the term deposit rates have reasonably increased in the past six to eight months for the entire banking system, the increase in deposit rates by mid-sized private banks in few tenure buckets have shown a sharp rise compared to other banks.

“Few banks were offering higher rates on a sustained basis even during the time of pandemic when the banking system was flooded with excess liquidity. This has helped them to garner new retail depositors,” says Ind-ra.

The rating agency opines that the thrust on building digital infrastructure has been playing a meaningful role in attracting urban-metro population as depositors.

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