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Wednesday, January 9, 2013

Axis Bank joins PSBs like Dena Bank & Corporation Bank in raising deposit rates

Axis Bank joined state-run lenders such as Dena Bank and Corporation Bank in raising interest rates for deposits in select tenor, sending contrary signal to the market, which is expecting lower interest rates.

The instances of banks increasing deposit rates, though sporadic, come as a stark indicator of the reality that the economic slowdown has had varying effects on different entities, which could make RBI's monetary policy choice tough.

Axis Bank, the country's third-largest private sector bank, on Tuesday raised rates from 9% to 9.25% for deposits of size Rs 1 crore to less than Rs 5 crore and for maturity of 18 months to less than five years. "We have raised rates for ALM (asset liability management) reasons," said a senior treasury official with the bank, requesting anonymity.

Even as the market clamours for lower interest rates, banks are finding it difficult to raise funds to meet loan demand at low rates, forcing many of them to raise deposit rates.

Corporation Bank had, on Monday, introduced a new tenor for 555 days offering 9.10% per annum, higher than the maximum of 9% it pays for one-year deposits. The bank pays 6.5% to 9% for deposits of various maturities. Dena Bank increased interest rates on term deposits for maturity period of one year to less than two years by 35 basis points since December 22.

At the system level, deposit growth has lagged the RBI's comfort level of 15 % for FY'13. As of mid-December '12, deposits in the system grew by 13.3% year-on-year compared to 18% in the same period a year ago. Loan growth is, however, higher at 16.3%, compared with the central bank's comfort of 16% for the year.

The central bank has been worried about the growing wedge between deposit and loan growth. "The wedge between deposit growth and credit growth could widen on the back of the seasonal pick-up in credit demand in the second half of the year," Governor Duvvuri Subbarao had said last September.

Source: Economic Times


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