Banks will hike interest rates further in 2023 as competition for deposits heats up.

What a difference a year could make! At this time in the year 2000 the interest rate was at an all-time low, when central banks, like those of the Reserve Bank, focused on recovering economies that had been hit by the covid-19 virus. Through 2022 in the meantime, the RBI as well as many other banks is required to re-evaluate its monetary policy and hike rates several times in order to curb excessive inflation. This has led to an increase in the rates of lending however, banks in these past few months have had to go through numerous rounds of deposit rates hikes due to the high growth in credit.
In 2023’s future Looking ahead to 2023, the RBI is likely to raise the benchmark rate even more in the next meeting of the monetary policy committee in February. It will also keep interest rates in check throughout the rest of the year. It will be evaluating the effect of rate increases already in place on inflation and growth. As credit growth is expected to be in double digits for the next few years banks are likely for attractive rates of rajkot updates news during the sixth phase of vibrant gujarat summit 135 mous were signed to increase their deposit rates.

The rates for deposits have declined throughout the last 10 years. The average of one year rate for term deposits was around nine percent. They fell to 6.50 percent in 2017-18 before increasing to 5.0 percent last year.

Banks will hike interest rates further in 2023 as competition for deposits heats up.

In the present, however the interest rates are currently rising. Banks are experiencing an impressive increase in credit (17.5 percent growth year-over-year during the two weeks that was completed on December 2 2022). Although deposits have also increased but they’ve not kept up with the rapid growth in credit. In terms of deposits, they stood at 175.2 lakh crore in the two weeks that ended on 2nd December 2022 – a 9.9 percent growth year-on-year.

For comparison, in the period that ran from December 03in 2021 the growth in credit was 7.3 per cent, and the growth in deposits was 9.3 percent. As of December 20, 2020, the rate of credit growth stood at 4.7 percent, while the growth in deposits was 11.3 percent as per the CARE Ratings.

Due to a slower growth in deposits and the central bank’s efforts to tighten liquidity within the system, there’s been a race for lenders in order to get low cost deposits over the past six months. Both state-owned and private sector banks have increased their deposits multiple times over the last six months.

Banks will hike interest rates further in 2023

State Bank of India, the nation’s biggest lender offers the interest rate of 6.75 per cent for deposits from one year and less than three years for deposits less than two crore. Senior citizens can also earn an extra 50 base points which brings the interest rate up to 7.25 percent.

Private sector competitors HDFC Bank and ICICI Bank offer a rate of 7.0 percent for loans that exceed 15 months. Senior citizens can also earn an extra 50bps of rate of The smaller competitor IDFC First bank is also providing interest rates as high as 7.50 percent on its time deposit.

“While the term deposit rates have reasonably increased in the past six to eight months for the entire banking system, the increase in deposit rates by mid-sized private banks in few tenure buckets have shown a sharp rise compared to other banks,” in a report of India Ratings and Research.

In May 2022, the RBI has raised its standard repo rate (the rate that it loans commercial banks) to 6.25 percent from 4.0 percent. It is expected for the RBI to is likely to increase rates once more in February, prior to an temporary pause.

The economists of DMI Finance, for instance expect another 25 to 35 bps repo rate rise during February.

“This will bring the repo rate as high as 6.5-6.6 percent, which is based on its inflation forecast of 5.9 percent in Q4 2022-23 would result in positive rates of interest. We are confident we can be sure that RBI will maintain rates at this level, and then pivot toward a neutral monetary policy position,” the economists said.

Suvodeep Rakshit, a senior economist with Kotak Institutional Equities, sees RBI MPC finely split between the last 25bps increase and a break during February, before deciding to adopt the long-term wait-and-watch method.

Rates on deposits have already crept upwards by around 2 percent during the last six-eight month. However, as credit growth is expected to continue to be high, there is a chance that banks will increase rate of interest on deposit in the next year.

“In this year’s fiscal year, changes in deposits has been more rapid than that of credit and reversed the previous trend of deposit growth faster as compared to credit. Deposit rates have already begun to rise and CareEdge believes that the rates will increase further due to the increasing competition for deposits since banks concentrate on finding deposits because of the rising rate of interest, the strong demand for credit, and less liquidity on the market.” stated analysts from CARE Ratings.

Rakshit echoes similar sentiments.

“While the rate hikes are getting closer to its end, rate of loan and deposit rates continue to show positive developments, particularly as the liquid surplus is still more tilted towards neutral deficiency. The deposit rate to be required to rise higher to accommodate the increasing demand for credit in the short future,” he said.

It appears that 2023 will prove to be a great year for those who save.

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