Commercial banks in the country are increasing interest rates on long term fixed deposits. State Bank of India (SBI), the country's largest bank, has increased the interest rates it is offering on long term deposits of 3 to 5 years in the retail segment, to 9 percent per year. It is a hike of 50 basis points.
Similarly, Deutsche bank has also increased its interest rates on deposits of two to three years, three to five years and five years. The new interest rates are 9.25 percent on two to three year's fixed deposits, 9.5 percent on three to five years and five years fixed deposits.
Recently, the monetary regulator, RBI, released data that indicates that deposits of banks have grown by 14.4 percent year after year. RBI's deposits growth projections for the current fiscal year stand at 16 percent.
On this matter, a research note from Bunty Chawla, a research analyst at Shah Investor's Home says, "The deposit growth of banks as on 18th May 2012 remains below the RBI's expectations for FY2012-2013, while credit growth better than RBI's expectations for FY2012-2013."
There are speculations that the banks have increased the rates on long term deposits to boost the deposit growth. "Recent hikes in interest rates on long term fixed deposits are due to the expectations that the long term interest rates may not come down as quickly as short term rates," a fund manager said on the matter.