In a move that has been highly anticipated by economists and investors alike, the Reserve Bank of India (RBI) on Friday, October 6, kept the repo rate unchanged for the fourth consecutive time. This decision comes as the central bank maintains a vigilant stance on inflation, pausing the rate increase cycle that was initiated in May, 2022. The RBI had previously implemented six consecutive rate hikes, totalling 250 basis points, until the pause in April.
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For fixed deposit (FD) investors, this decision by the RBI holds significant implications.
Shaktikanta Das, RBI Governor, emphasised that while the repo rates have been raised by 250 basis points, this increase has not been fully transmitted to bank lending and deposit rates.
What this means for depositors is that there is still room for a potential hike in FD rates.
During the period when the RBI increased the repo rate, banks gradually followed suit by raising their FD interest rates, although there was some delay in transmission. Banks that initially delayed raising their FD rates have since been increasing them to catch up with the RBI's policy actions.
For perspective, when the repo rate increases, FD interest rates follow suit, and when the repo rate decreases, FD interest rates decline as well.
Here's a look at current fixed deposit interest rates of banks:
| Bank Name | Interest Rates (p.a.) | ||||
| Highest slab | 1-year tenure (%) | 3-year tenure (%) | 5-year tenure (%) | ||
| % | Tenure | ||||
| SMALL FINANCE BANKS | |||||
| AU Small Finance Bank | 8.00 | 2 years 1 day to 3 years | 6.75 | 8.00 | 7.25 |
| Capital Small Finance Bank | 7.50 | 12 months | 7.50 | 7.15 | 7.10 |
| Equitas Small Finance Bank | 8.50 | 444 days | 8.20 | 8.00 | 7.25 |
| ESAF Small Finance Bank | 8.50 | 2 years to less than 3 years | 6.00 | 6.75 | 6.25 |
| Fincare Small Finance Bank | 8.51 | 750 days | 7.50 | 8.00 | 8.00 |
| Jana Small Finance Bank | 8.50 | Above 2 years to 3 years | 8.00 | 8.50 | 7.25 |
| Suryoday Small Finance Bank | 8.60 | Above 2 years to 3 years | 6.85 | 8.60 | 8.25 |
| Ujjivan Small Finance Bank | 8.25 | 1 year; 80 weeks | 8.25 | 7.20 | 7.20 |
| Unity Small Finance Bank | 9.00 | 1001 days | 7.35 | 7.65 | 7.65 |
| Utkarsh Small Finance Bank | 8.50 | 2 years to 3 years | 8.00 | 8.50 | 7.50 |
| PRIVATE SECTOR BANKS | |||||
| Axis Bank | 7.10 | 15 months to less than 5 years | 6.70 | 7.10 | 7.00 |
| Bandhan Bank | 7.85 | 500 days | 7.25 | 7.25 | 5.85 |
| City Union Bank | 7.00 | 400 days | 6.75 | 6.50 | 6.25 |
| CSB Bank | 7.35 | 444 days | 5.00 | 5.75 | 5.75 |
| DBS Bank | 7.50 | 2 years 6 months 1 day to less than 3 years | 6.25 | 6.50 | 6.50 |
| DCB Bank | 7.90 | 25 months to 26 months; 37 months to 38 months | 7.15 | 7.60 | 7.40 |
| Federal Bank | 7.30 | 13 months to 21 months | 6.80 | 6.60 | 6.60 |
| HDFC Bank | 7.20 | 4 Year 7 months to 55 months | 6.60 | 7.00 | 7.00 |
| ICICI Bank | 7.10 | 15 months to 2 years | 6.70 | 7.00 | 7.00 |
| IDFC First Bank | 7.50 | 1 year 1 day to 2 years | 6.50 | 7.25 | 7.00 |
| IndusInd Bank | 7.85 | 1 year 6 months to less than 1 year 7 months | 7.50 | 7.25 | 7.25 |
| Jammu & Kashmir Bank | 7.10 | 1 year to less than 2 years | 7.10 | 6.50 | 6.50 |
| Karnataka Bank | 7.25 | 444 days | 6.95 | 6.50 | 6.50 |
| Karur Vysya Bank | 7.50 | 444 days | 7.00 | 7.00 | 6.50 |
| Kotak Mahindra Bank | 7.25 | 23 months | 7.10 | 6.50 | 6.20 |
| Nainital Bank | 7.05 | 400 days - Naini Plus 2023 Deposit Scheme | 6.70 | 6.25 | 5.75 |
| RBL Bank | 7.80 | 15 months to less than 2 years | 7.00 | 7.10 | 7.10 |
| SBM Bank India | 8.25 | 3 years 2 days | 7.05 | 7.30 | 7.75 |
| South Indian Bank | 7.20 | 500 days - SIB 94 Plus | 6.60 | 6.50 | 6.00 |
| Tamilnad Mercantile Bank | 7.00 | 1 year to less than 2 years | 7.00 | 6.50 | 6.50 |
| PUBLIC SECTOR BANKS | |||||
| Bank of Baroda | 7.25 | 399 days - Baroda Tiranga Plus Deposit Scheme | 6.75 | 7.05 | 6.50 |
| Bank of Maharashtra | 7.00 | 200 days | 6.35 | 6.00 | 5.75 |
| Canara Bank | 7.25 | 444 days | 6.90 | 6.80 | 6.70 |
| Central Bank of India | 7.15 | 777 days | 6.75 | 6.50 | 6.25 |
| Indian Bank | 7.25 | 400 days - IND SUPER | 6.10 | 6.25 | 6.25 |
| Indian Overseas Bank | 7.25 | 444 days | 6.50 | 6.50 | 6.50 |
| Punjab National Bank | 7.25 | 444 days | 6.75 | 7.00 | 6.50 |
| Punjab & Sind Bank | 7.40 | 444 days | 6.40 | 6.00 | 6.00 |
| State Bank of India | 7.10 | 400 days - Amrit Kalash | 6.80 | 6.50 | 6.50 |
| UCO Bank | 7.05 | 444 days | 6.50 | 6.30 | 6.20 |
| Union Bank of India | 7.00 | 399 days | 6.30 | 6.50 | 6.70 |
(Source: Paisabazaar; rates as on October 4)
The impact on investors
Many financial experts have weighed in on the RBI's decision and its impact on FD investors.
Venkatraman Venkateswaran, Group President and Chief Financial Officer at Federal Bank, commented, "Given the broad-based credit growth and the relatively favourable state of the Indian economy compared to the global economy, banks will continue to pursue retail deposits."
Aditya Gaggar, Director of Progressive Shares, added, "The incomplete transmission of the past 250 bps rate hikes to bank lending and deposit rates led to continue the stance of withdrawal of accommodation." He also hinted at the possibility of tightening liquidity through open market operations (OMO) with regard to G-secs to manage liquidity.
Parry Singh, Founder & CEO of Red Fort Capital, pointed out that while the RBI's decision is favourable for depositors, they should be prepared for a gradual decrease in FD interest rates in the months ahead as the central bank embarks on its monetary policy easing journey.
Investment strategy
Financial experts recommend that in the current climate, investors can maximise returns on FDs with a few strategic steps. Amit Gupta, MD of Sag Infotech, shared essential tips, including comparing interest rates offered by different banks and implementing FD laddering, a strategy that involves distributing investments across multiple FDs with different maturity periods to ensure regular liquidity and potential reinvestment at more favourable rates.
Gupta also emphasised considering tax implications, as interest earned from FDs is taxable, and avoiding premature withdrawals to prevent penalties and reduced interest earnings.
CA Manish Mishra, Virtual CFO and Growth Advisor, echoed the importance of FD laddering as a prudent investment approach.
"In FD laddering approach, investors allocate their funds across various FDs, each bearing distinct tenures and interest rates. This yields a structured ladder of maturity dates, offering a blend of liquidity and prospects for reinvestment at potentially enhanced interest rates," Mishra told CNBC-TV18.com.
In order to maximise the benefits of fixed deposits, investors should vigilantly track the trajectory of interest rates and forecasts and as each FD reaches maturity, they should intelligently reinvest the proceeds into a new FD with the lengthiest tenure within the ladder.
"This tactic may yield superior returns over time. Also, investors should tailor their FD distribution to align with their financial objectives and liquidity requirements. To ensure more liquidity, they can consider dedicating larger sums to short-term FDs. Conversely, they can allocate substantial amounts to long-term FDs if liquidity is not an immediate concern," Mishra said.
(Edited by : Shoma Bhattacharjee)
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