The Relation Between Repo Rate And FD Rates; Check Latest Interest Rates Of Top 5 Indian Banks

Fixed deposits are among the most common and popular investment schemes offered by Indian banks. They are risk-free and offer guaranteed returns, and it is because of these benefits that make FDs a traditional practice in the investment world. However, the rate of return on FDs may decrease and increase depending upon the shift in RBI's policy repo rate. This week, RBI has decided to keep the repo rate unchanged, a move in the right direction ahead of the festive season.

On October 6th, RBI kept the policy repo rate under the liquidity adjustment facility (LAF) unchanged at 6.5%. Also, the six-member monetary policy committee (MPC) chaired by RBI governor Shaktikanta Das stayed on its 'withdrawal of accommodation' stance to ensure inflation progressively aligns with its target. Also, RBI decided to discontinue the incremental cash reserve ratio (I-CRR) of 10% in a phased manner, ending October 7, 2023.

As per Bajaj Finserv blog, the frequency at which FD rates increase or decrease depends on the repo rate by the RBI. The repo rate, in turn, is affected by the economic situation. Simply put, the FD rates usually see a change whenever there is a change in the repo rate.

The blog highlighted that RBI is the prime force directing the nation's monetary policy. After a thorough assessment of the economy, the Monetary Policy Committee of India (MPC) decides the repo rate. The repo rate by the RBI acts as a benchmark for banks, NBFCs, and other financial institutions. This is because the repo rate is the interest rate at which the RBI lends money to the nation's financial institutions.

As such, an FD interest rate hike is generally a result of a hike in the repo rate. The situation will be reversed on FD rates if RBI has trimmed repo rate. While a pause in repo rate relatively may result in banks maintaining their current FD rates.

Data from RBI showed that in the rate hike and monetary policy cycle, where the repo rate has increased by 250 basis points from May 2022 till February 2023, the weighted average domestic term deposit rate (WADTDR) of scheduled commercial banks has also climbed by 233 bps in the current cycle.

How will the latest RBI's policy impact banks business:

On the monetary policy, Sujan Hajra, Chief Economist & Executive Director, Anand Rathi Shares and Stock Brokers said, "The monetary policy statements in October 2023, as expected, maintained the status quo on all points. Contrary to common belief, the RBI did not lower its growth forecasts. According to the inflation projection, the RBI anticipates persistent headline inflation even in FY25."

According to the RBI's inflation forecast, Hajra explained that the real policy rate would be in the 100 to 150 basis point range in FY25. This is consistent with the central bank's preference. As a result, he added, "a rate cut in the next 12 months is exceedingly unlikely."

On the plus side, Hajra believes that the governor expressed strong confidence that India will maintain strong growth and that inflation will continue to fall, albeit slowly. These forecasts are encouraging for both the equity and debt markets in the medium term. However, the strong possibility of the RBI remaining on hold for an extended period of time, as well as the continuance of liquidity tightening, is bad for interest-sensitive industries.

The festive season is near and despite the RBI repo rate being unchanged, it will be interesting to watch whether banks go out of their way to stir a rate war by offering alluring interest rates on FDs. Demand for investment especially in traditional schemes like FDs is high during the festive season.

As per Umesh Revankar, Executive Vice Chairman, Shriram Finance, hopefully, the upcoming festive season will boost consumption levels. A robust Kharif crop performance will further boost economic growth. The RBI's complete discontinuance of the incremental cash reserve ratio introduced in August is a positive step.

Also, Ajit Banerjee, Chief Investment Officer of Shriram Life Insurance said, the MPC has expressed its concern over global growth losing momentum and opines that the view taken by major central banks about maintaining higher for longer rates is inflicting volatility to the financial markets. Back home its comfortable about the buoyancy in the urban consumption and improvement shown in pick up in rural demand. MPC is also very upbeat on domestic economic activity holding up which is further expected to be boosted by the festive consumption demand.

In the case of the banking sector, Anil Rego, Founder and Fund Manager at Right Horizons, said that investors are bullish as they are favouring rate cuts in 2024 which will unanimously boost the equity markets. The banking sector is the most sensitive to changes in rate cycles and has been a major reason for incremental earnings in FY23 and the first quarter of FY24 benefitting from the hikes and credit growth being robust and persistent. Prolonged rate cuts will eventually lead to narrowing NIM but we expect rate cuts to begin in the last quarter and hence the trend in the banking sector is likely to continue in FY24. NBFCs will be best positioned to benefit from cuts in rates as credit growth will improve followed by banks. Also, credit-sensitive sectors like auto and real estate will see higher demand.

Here is the list of FD interest rates offered by top Indian banks:

Top 5 Indian Banks' FD Rates:

HDFC Bank FD Rates:

HDFC Bank is the largest banker in both India and private sector banks in terms of market share. Among its peers, HDFC Bank is the latest to revise its FD rates below Rs 2 crore with effect from October 1, 2023.

To senior citizens, HDFC Bank is offering attractive FD rates. The highest would be 7.75% on 5 Years 1 day - 10 Years tenure; 7.70% on 4 Years 7 Months - 55 months; 7.65% on 2 Years 11 Months - 35 Months; and 7.60% on 15 months to less than 18 months. The rest of the tenures have interest rates ranging from 3.5% to 7.50%.

To the general category, HDFC Bank's rates vary from 3% to 7.20%.

State Bank of India (SBI) FD Rates:

SBI last revised its FD rates below Rs 2 crore in February 2023. With effect from February 15, 2023, SBI gives as high as 7.50% on 2 years to less than 3 years and 5 years and up to 10 years maturities to senior citizens. While the rates on other tenures are between 3.50% to 7% for elderlies.

Meanwhile, the normal category is offered 3% to 7% rates.

Under its 400 days (Special Scheme i.e. " Amrit Kalash"), SBI is offering a 7.60% rate to senior citizens and 7.10% to the general category.

ICICI Bank FD Rates:

Since February 24, 2023, ICICI Bank has been offering as high as 7.60% to senior citizens on tenures from 15 months to 2 years, while the normal category gets a 7.10% rate.

Other tenures have FD rates of 3.50% to 7.50% for senior citizens, and 3% to 7% for individuals.

Kotak Mahindra Bank FD Rates:

On less than Rs 2 crore FDs, senior citizens here can earn as high as 7.75% on 23 Months tenure; 7.70% on 391 Days - Less than 23 Months, and 23 months 1 Day- less than 2 years tenure; and 7.65% on 390 Days tenure. Other rates range from 3.25% to 7.60%.

Under the general category, the interest rates vary from 2.75% to 7.25%.

Axis Bank FD Rates:

On FDs below Rs 2 crore, senior citizens at Axis Bank get as high as 7.75% on the highest tenure of 5 years to 10 years; while the normal category gets 7.10% on tenures from 15 months to less than 5 years.

While FD rates vary from 3.50% to 7.60% for senior citizens on other tenures, and 3% to 7% for individuals.