Bank deposit rates may be close to their peaks, with possibilities of further increases likely limited only to select tenures, even as the central bank might consider increasing the policy rate at least once in 2023.
“There would be rise in deposit rates here and there by some basis points as credit growth continues,” the chief executive of a south-based public sector bank said. “But deposit rates by and large have reached near peaks.”
One basis point is 0.01%.
To be sure, deposit and lending rates in real terms are much lower than pre-pandemic levels, according to the Reserve Bank of India’s (RBI) monetary policy committee member Rajiv Ranjan.
“First, there is room for further rise as RBI is expected to increase rates once more in February. Second, while rates will go up, it will be selective across certain tenures and not across the board,” said Bank of Baroda chief economist Madan Sabnavis.
He explained that only some maturities will see an increase where banks require more funds.
Despite the gap in credit growth and deposit growth, deposit rates are unlikely to rise across-the-board in the near future.
The divergence in deposit growth and credit growth is largely due to base effect, RBI Governor Shaktikanta Das said.
“The credit growth is on a low base. The deposit growth is on a high base. That is why it appears that there is divergence between the two; that they look to be so divergent,” Das had said during the last policy meeting.
At the end of the first fortnight of December, bank loans grew 17.4% year-on-year to Rs 132 lakh crore while total deposits with banks rose 9.4% year-on-year to Rs 174 lakh crore. Interestingly, credit growth for almost all categories lagged behind the deposit growth when taken from the pre-Covid period (taken as of March 2020), showed a CareEdge Ratings report.
The weighted average lending rates on fresh and outstanding rupee loans have increased by 117 basis points (bps) and 63 bps respectively, during the period May to October 2022. On the deposit side, the weighted average domestic term deposit rate increased by 150 bps during the same period. Rise in deposit rates only impact new deposits and renewals. RBI raised repo rates by 225 bps since April last year.