Bank deposit rates are rising as money gets scarce

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Bank deposit rates are rising as money gets scarce
The recent RBI measures to drain liquidity from the system to battle the falling rupee, has pushed bank fixed deposit rates higher, as money in the system has begun getting scarce.

ICICI Bank, the largest private sector bank in the country, has joined the list of banks who have hiked their domestic fixed deposit rates. The bank has increased its deposit rates on select maturities by 50-75 basis points.

Karnataka Bank has also revised interest rate for deposits of 121 days to 180 days to 8.25 per cent, 181 days to 364 days to 8.25 per cent, while its 1 year to 2 years is hiked to 9.25 per cent and the above 2 years to 3 years now stands increased at 9 per cent.

A few days ago Punjab and Sind Bank had increased deposit rates for maturity periods 151 days - 179 days, 180 days - 269 days term deposits, from 8.00 per cent to 8.25 per cent per annum. The interest for maturity period from 1 year to 2 years was increased by 25 basis points from 8.75 per cent to 9.00 per cent.

HDFC Bank, also raised fixed deposit rates by 1 per cent for maturities between 15 days to 6 months one day.
On the other hand Axis Bank had raised interest rates on term deposits with maturity between 14-29 days by 4 per cent to 8 per cent. The Bank also raised interest rates on its 7-14 days deposit to 7.5 per cent on bulk deposits above Rs 1 crore.

Yes Bank, India's fourth biggest private sector bank, also said that it has revised its deposit rates by 0.25 per cent to 0.50 per cent in select tenors.

The RBI it may be recalled took a number of initiatives to drain liquidity from the market, which is why Banks are forced to hike deposit rates.

It may be recalled that the RBI hiked the MSF requirement for banks. Under the MSF banks were borrowing from the RBI at repo rate, plus 1 per cent, which effectively meant 8.25 per cent. But, with effect from July 17, banks have to borrow at 10.25 per cent, which is a good 2 per cent over and above the existing rates.

In other significant move the RBI also fixed the limit for borrowing at 1% of the of the Net Demand and Time Liabilities (NDTL) of the banking system, reckoned as Rs.75,000 crore for this purpose. The allocation to individual banks will be made in proportion to their bids, subject to the overall ceiling.

Read more about: icici bank, yes bank, rbi
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