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Will banks increase deposit rates after RBI rate hike?

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Will banks increase deposit rates after RBI rate hike?

The RBI raised the repo rate by 25 basis points to 5.50 per cent on Wednesday, its first rate increase in nearly four years, and shifted its policy stance to calibrated tightening.

Banks are unlikely to raise deposit rates immediately as surplus liquidity reduces the need to compete aggressively for deposits. SBI chairman C S Setty expects deposit rates to remain unchanged for the next two to three months, citing sufficient liquidity in the banking system. Stronger credit growth than deposit growth could increase competition for deposits and push FD rates higher as liquidity is absorbed. The RBI rate hike could initially support banks' net interest margins as lending rates reprice faster than deposit costs.

Indian banks are unlikely to raise deposit rates immediately after the Reserve Bank of India's 25-basis-point repo rate hike, as surplus liquidity has reduced the immediate need to compete for deposits. However, with credit growth already running ahead of deposit growth, competition for deposits could intensify over the next few quarters as the liquidity cushion is absorbed. The immediate rate hike is therefore likely to support banks' margins before it translates into higher funding costs. The RBI raised the repo rate by 25 basis points to 5.50 per cent on Wednesday, its first rate increase in nearly four years, and shifted its policy stance to calibrated tightening. The move changes the direction of the interest-rate cycle, but the transmission to deposit rates is unlikely to be immediate. Advt

State Bank of India chairman C S Setty expects deposit rates to remain unchanged for the next two to three months, citing sufficient liquidity in the banking system.


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