Banks, especially mid- and small-size private banks and small finance banks (SFBs) have introduced special rates on savings accounts as part of their festival season offers to attract more low-cost deposits.

Rates on fixed deposits (FDs) have been elevated for more than a year with SFBs offering up to 9.45-9.50 per cent. Recently, banks have been relying more on bulk deposits to boost their deposit base amid muted retail deposit accretion.

To encourage the latter, Bank of Baroda recently introduced four new types of savings accounts, and increased rates on retail term deposits of less than ₹2 crore, including NRO and NRE deposits, by up to 50 bps. It also raised rates on bulk deposits of different tenures by around 1 per cent.

Other mid and small private banks such as YES Bank, RBL Bank and DCB Bank are offering savings rates as high as 7-8 per cent.

This is nearly at par with and in some cases higher than 1-3-year term deposit rates of larger banks. A lot of these higher rates schemes are being introduced as a part of festival season offers for customers.

“As the rates are higher than term deposits, the pricing seems to be a bit irrational. The effective rate on savings deposits less than ₹10 lakh is lower and hence in some way one can consider this as a marketing ploy,” Macquarie Research said in a note.

“The rates offered indicate the deposit mobilisation pressure faced by these banks to sustain good credit growth,” it said, adding that savings deposit growth is lagging total deposit growth by a wide margin of 600-700 bps at a system level.

Weak CASA growth

Provisional Q2 numbers by banks showed that while overall deposit growth was healthy, much of it was driven by bulk deposits and FDs whereas growth in CASA (current and saving account) deposits remained relatively weak. The top six banks of the country together hold 55 per cent of the savings deposit market share. 

In Q1 FY24, term account deposits rose 17.4 per cent y-o-y, outperforming other segments by a wide margin. On the other hand, saving account deposits grew a moderate 4.9 per cent on year, losing 240 bps in market share, according to a note by CARE Ratings.

On Monday, HDFC Bank reported a 30 per cent y-o-y increase in deposits, wherein CASA deposits grew only 7.6 per cent y-o-y and time deposits grew 48.3 per cent.