Bangalore: With equity markets in the doldrums, people with surplus cash are making a beeline for banks, which are offering attractive returns on short-term fixed deposits (FDs). Several banks are offering interest rates ranging from 9% to 10.5% on deposits for periods ranging from six months to two years.
Albert Tauro, chairman and managing director of Vijaya Bank said, “FDs are yielding positive returns as it beats inflation levels.”
Over five years, IPO returns trail FDs’
V K Dhingra, executive director of UCO Bank said, “The rate hike is thanks to the credit crunch banks were facing a while ago. Post our hike in FD rates to 10.5% for one-year deposits earlier this year, people began pulling funds out of stocks and mutual funds and began investing in FDs.”
The bank has a whopping Rs 82,000 crore FD corpus, growing at 17% year on year.
Tax-saving FDs merit more than a look
DBS Bank is the latest in a list of banks to hike interest rates on deposits. Earlier this month, it increased interest rates on FDs with maturity between 180 and 270 days by up to 125 basis points to 10.75%.
Bankers say these short-term FDs provide a good option for people who are waiting for a clear picture on the economy to emerge.
C Abraham, general manager of Union Bank, said, “Investors can stay invested for a short tenure with assured returns at a healthy interest rate.”
Union Bank had in August introduced a new term deposit product of 444 days offering an interest rate of 10% per annum.
According to George Joseph, CMD of Syndicate Bank, some depositors who have an existing savings account are pulling out money to reinvest in FDs. With returns of around 10.5% per annum, the FDs offer a safe hedge against inflation, which is hovering close to the 10% mark.
Syndicate Bank is also running a door-to-door campaign to raise deposits from high networth individuals (HNIs).
Joseph said, “We have raised Rs 700 crore of HNI money from Delhi and Kolkata in November, of which 60% were FDs.” The bank has a Rs 36,000 crore FD portfolio that grew at 30% year-on-year last quarter and expects to maintain it for this fiscal.
However, the party might not last very long. The Reserve Bank of India has pumped in enough liquidity into the system with its monetary measures. So, banks may not have to rely on FDs for mopping up funds much longer.
In fact, Syndicate Bank and Corporation Bank have announced that they would reduce interest rates on one-year deposits starting December 1. Other banks are expected to follow suit.
Until they have, there is an opportunity for investors to head for the nearest bank and put some money in FDs.
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