The consecutive rate hikes by the Reserve Bank of India (RBI) has definitely brought cheers to the fixed deposit investors. On February 8 this year, RBI hiked the benchmark lending rate — repo rate by 25 basis points to 6.50 per cent to bolster the fight against inflation.
Soon after the decision, the public and private sector banks, housing finance companies and other lending institutions also hiked the interest rate on all kinds of Home and personal loans. FYI, the repo rate is the rate at which the RBI lends money to commercial banks in the country. This eventually will lead to more burden on the existing and new borrowers as they will have to dole out higher EMIs for their loans.
However, at the same time the banks start passing on the same to the fixed depositors in terms of hike in deposit rates. When commercial banks hike interest on loans, they will have to pass the same benefit of the higher interest to the term depositors and also the credit growth has been far outpacing deposit mobilization throughout this fiscal, leading to a funding crunch.
This is the reason why most of the commercial banks are now forced to offer inflation-beating real interest rates on fixed deposits.
According to a PTI report, banks have fully passed on the 250-bps hike in RBI rate since May last year to their borrowers, they’ve not been doing so for deposits, leading to a funding gap and forcing them to borrow from the market
FD vs SIP – Which is a better investment option?
Market expert Manish Sonthalia from Motilal Oswal Asset Management Company said, “One thing that has really changed over the last year is the coming back of the fixed income asset class due to good returns. India has outperformed many of the emerging markets and for many people, a large portion of their asset class allocation has moved to fixed deposits.”
New money coming to equities is finding tough justification from the markets in terms of returns. However, the long term trajectory is particularly good.
“Experienced investors who understand the equity market or have been trading for a long period of time would know that there would be a period of time of market corrections but ultimately this is one asset class which gives decent returns,” Sonthalia added.
List of banks offering up to 9.50 per cent interest on FDs
Punjab & Sind Bank
222 days FD scheme offering senior citizens an interest rate of 8.50 per cent per year and the general public an interest rate of 8 per cent.
Central Bank of India
444 days FD offering 7.60 per cent for non-senior citizens and 8.10 per cent for senior citizens.
Utkarsh Small Finance Bank
700 Days FD offering 8.25 per cent for the general public and 9 per cent for elderly individuals.
Unity Small Finance Bank
1001 Days FD offering 9 per cent for the general public and 9.50 per cent for elderly people.
