Banks and finance companies in India begin cutting interest rates on fixed deposits

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     Banks and finance companies in India begin cutting interest rates on FDs
    Interest rates on bank deposits have fallen and are set to decline further. Several reputed banks and finance companies have cut rates, while others are contemplating lower interest rates.

    State Bank of India cut its interest rate on fixed deposits between 7-179 days to 7 per cent from 7.5 per cent, the bank said in a statement recently. In case of bulk deposits above Rs 1 crore, the downward revision has been effected in two maturity buckets. The interest rate on term deposits between 7-60 days has been reduced by 0.25 per cent to 6.25 per cent while for 61 days to less than one year, it has been reduced to 6.75 per cent from the existing 7 per cent.

    IDBI Bank which was running the popular 5-00-day deposit has cut the interest rate from 9.3 per cent to 9.2 per cent.

    Vijaya Bank reduced its deposit rates by 5 to 50 basis points in six slabs of different maturity periods starting from 46 days to one year in respect of deposits of Rs.1 crore and above last month.

    Karnataka Bank which until recently was giving 9.5 per cent on its fixed deposits for 1-2 year tenures has cut the rate to 9 per cent for the same tenure.

    Non Banking Finance Company major Shriram Transport Finance is likely to reduce interest rates soon, while Mahindra Finance has stopped accepting deposit, so as to facilitate a drop in interest rates.

    Clearly, interest rates on deposits are falling.

    How far will they fall?

    From here on we can except some stability in interest rates, given the fact that the Reserve Bank of India (RBI), might not cut repo rates anytime soon. Repo rates are rates at which the RBI lends to banks in the country. Any cut in the repo rate might lead to an interest rate drop in the economy. It would be advisable to book deposits for higher duration as interest rates might fall and by booking for longer periods you would have hedged against falling interest rates.

    Story first published: Monday, August 18, 2014, 8:35 [IST]
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