Stories
RBI Repo Rate Hike: Why Banks Are Holding FD Rates Steady
- •The Reserve Bank of India raised the repo rate by 25 basis points to 5.50 per cent, but large banks are holding off on immediate FD rate hikes due to surplus liquidity.
- •RBI Governor Sanjay Malhotra expects surplus liquidity conditions to normalize within the current financial year as the central bank manages liquidity using various tools.
- •Banks with comfortable deposit surpluses lack the incentive to compete aggressively for fresh money, delaying the transmission of rate hikes to depositors.
- •Bajaj Finance has already increased interest rates on its fixed deposits by 15-40 basis points across various tenures effective from October 7.
- •Savers whose fixed deposits are maturing soon may get opportunities to lock in higher rates later as liquidity reduces and deposit competition intensifies.
Key Questions Answered
Large banks are keeping fixed deposit rates steady for the next two to three months because they currently have surplus deposits and comfortable liquidity conditions, meaning they lack the incentive to aggressively compete for fresh funds. As RBI Governor Sanjay Malhotra noted, the repo rate does not automatically determine deposit rates, and transmission depends on individual bank liquidity requirements.
Bajaj Finance increased its fixed deposit interest rates by 15 to 40 basis points across tenures ranging from 12 to 60 months, with the revised rates effective from October 7. Regular depositors can now earn up to 7.75 percent per year for a 31-60 month tenure, while senior citizens can receive up to 8.15 percent for the same period.
RBI Governor Sanjay Malhotra expects the current surplus liquidity conditions to sort out within the current financial year. He noted that the central bank is actively managing liquidity using tools such as spot intervention and indicated that these conditions are unlikely to persist for very long.
