The interest rates of most banks on fixed deposits (FD) have declined over the last months and now the rate of the interest is 5-6%. Yet some banks are still offering an interest rate of 7%. The reasons for this variation are the weakness of the stock market, people commonly wanting to save a little more to be ready for the tough economic situation ahead. At the same time, borrowers repaid more loans than availing for new ones, thus the total bank credit contracted by Rs. 1.48 trillion. Even though there was a huge deposit with banks, this money did not have much demand in the form of loans. Consequently, the banks declined interest rates on fixed deposits. The customers still have some apprehensions about the kind of rates offered by the bank.
The clarifications regarding interest rates are the excess supply of deposit leads banks to lower down the interest rates to 5-6%. In the case of SBI, the largest bank in India in the country offers an interest rate of 4.75%. While considering the banks like IndusInd, DCB Bank, IDFC First Bank, and Yes Bank offer interest rates of 7-7.25%. The reason is very transparent, that the banks deemed to be safe can raise deposits at lower interest rates, while the banks that the public does not consider as a secure one needs to offer higher interest to attract deposits. This happens because of the competition between banks.
The next difficulty is the doubts that customers have, which converts to grounds for such a variation in interest rates. The total deposits of banks arise, but on the whole, some banks saw a fall in their deposits. The deposits of IndusInd were fell by about 7% from Rs. 2.17 trillion as of December 2019 to Rs. 2.02 trillion as of March 2020. In the case of Yes Bank, total deposits diminished nearly by 37% from December 2019 to March 2020, from Rs. 1.66 trillion to Rs. 1.05 trillion. The only way to attract deposits is, these banks have to offer higher interest rates. Banks like Yes Bank, IndusInd, and IDFC First Bank need to offer a higher rate of interest to attract deposits. In the case of SBI, Kotak and others are offering interest which is less than 6% as they are deemed to be the safest banks.
There are a variety of choices available when it comes to interest rates on fixed deposits. Yes, Bank was lately put under a moratorium and a large proportion of the deposit remained unreachable for some time. For the risk-taking depositors, it is better to opt for interest rates higher than 7%. If the customer is not willing to take risks when it comes to deposits, then they would settle for less than a 6% interest rate.
