Bank Fixed Deposits: Current Rates Likely to Hold

Despite the recent reduction in the Cash Reserve Ratio (CRR) by the Reserve Bank of India (RBI), banks are expected to maintain their current fixed deposit rates. The liquidity boost from the CRR cut, estimated at Rs 1.16 lakh crore, is seen as sufficient to meet lending needs through FY25.

Banking officials suggest that the reduced credit expansion has narrowed the credit-deposit gap, making it less urgent for banks to adjust deposit rates. PR Rajagopal, Executive Director of Bank of India, commented, "Deposit rates will be stable at current levels, with a downward bias. The liquidity infused via CRR will benefit all banks."

Deposit Rates: A Wait-and-See Approach

Financial experts believe that while deposit rates may trend downwards, any actual reductions will depend on the RBI lowering its benchmark repo rate. Jaideep Iyer, Head of Strategy at RBL Bank, noted, "Banks will want to ensure the durability of liquidity and hence will not cut rates in a hurry."

Banks have recently introduced special deposit schemes to attract more deposits. For instance, State Bank of India (SBI) launched the Amrit Vrishti scheme, offering 7.25% interest on 444-day fixed deposits, available until March 2025.

Inflation and Repo Rate: Key Factors

Banking officials emphasize that reducing deposit rates requires a clear downward trajectory in inflation, leading to a lower repo rate. Sanjay Mudaliar, Executive Director of Bank of Baroda, stated, "Expectations are that agriculture output will improve, which will cool food prices and bring inflation down. This could open the space for a cut in the repo rate."

The reduction in CRR has heightened anticipation of a repo rate reduction in February. The central bank's monetary policy committee will announce its next rate decision on February 7.