Are fixed deposits’ interest rates headed down?

RBI reduced the repo rates by as much as 50 basis points to 8.0% on 17^th April 2012, more than 25 basis points anticipated by the market participants and analysts.  100 basis points equals to 1 percentage point.  This cut is after 13 consecutive increases in rates since March 2010.  Due to the uncertainty over the global economy and continuing elevated inflation in domestic economy, it is not certain whether RBI will further cut rates during the year, but there shall not be any immediate increase in rates for the time being.

Effect of RBI’s rate cut on fixed deposits’ interest rates

There has been immediate effect of the RBI’s rate cut on fixed deposits’ rates and several banks have reduced interest rates on fixed deposit for all tenures.  Based on Bachhat’s tracking of fixed deposit rates, out of 30 banks which have revised interest rates on fixed deposits since 20^th March 2012 (the latest day on which FD rates were tracked by Bachhat), 22 banks have reduced the interest rates on fixed deposits and most of the reduction in interest rates happened after RBI’s rate cut on 17^th April 2012.  Only 8 banks have increased rates on fixed deposits during this period.  There are 22 banks which have not modified their fixed deposit rates during this period.

For example, Bank of Baroda has revised its interest rates downwards by 50 basis points for all tenures offered.  Similarly IDBI has reduced interest rates by 25 basis points for most of the tenures offered.  Following banks have reduced interest rates on fixed deposits since March 20^th, 2012:

Bank of Baroda	Barclays Bank	Canara Bank
Catholic Syrian Bank	Central Bank of India	Corporation Bank
Federal Bank	ICICI Bank	IDBI Bank
ING Vyasa Bank	Kotak Mahindra Bank	Lakshmi Vilas Bank
Oriental Bank of Commerce	Punjab & Sind Bank	Punjab National Bank
State Bank of India	State Bank of Patiala	State Bank of Travancore
Syndicate Bank	Tamilnad Mercantile Bank	UCO Bank
United Bank of India

Though the interest rates on fixed deposits have reduced since RBI’s rate cut, when compare to increase in fixed deposit rates during last 2 years, the rates are still attractive and for those who have missed the opportunity to lock high interest rates can still take benefit of it.  As regards future rate scenario, it all depends on how RBI reacts which in turn depends on host of events such as inflation, growth, Government’s policy measures and global economy.

To view interest rates on fixed deposits offered by all banks, click here.