When the Reserve Bank of India (RBI) started to raise repo rates in the month of May, most commercial banks were quick to raise lending rates in no time. At the same time, just as in any other rate hike cycle — the term deposit interest rates also saw an upward trend. However, the difference between the two rates lay in the quantum of rise.
Lending rates were raised at a far faster pace than that of term deposits.
In the past four monetary policy committee (MPCs) meets, repo rates were raised by a total of 190 basis points. A similar rise was seen in the home loan rates that were raised from 6.7 percent in May to 8.6 percent in October, the bankbazaar.com data shows.
On the contrary, interest rates offered by commercial banks on their term or fixed deposits remain at muted levels.
Home loan rates that ranged between 6.5 percent to 6.7 percent in March surged to anywhere between 7.45 to 7.6 percent in the month of July, and further to 8.4 to 8.6 percent in October, thus registering a total rise of 190 basis points.
On the other hand, fixed deposit rates that stayed in the range of 4.4 to 5.45 percent for different banks and tenure surged marginally to 4.5 to 5.5 in July, and further to 4.5- 6.1 percent in the month of October.
Interest rates on home loans
| Banks | March | July | October |
| HDFC* | 6.7 | 7.55 | 8.6 |
| SBI | 6.7 | 7.55 | 8.4 |
| ICICI Bank | 6.7 | 7.6 | 8.6 |
Interest rates on fixed deposits
| Banks | March | July | October |
| HDFC* | 4.4-5.2 | 4.65-5.5 | 4.65-5.5 |
| SBI | 4.4-5.45 | 4.6-5.45 | 4.6-6.1 |
| ICICI Bank | 4.4-5.2 | 4.65-5.5 | 4.9-5.8 |
(Source: Bankbazaar.com; *HDFC: NBFC for home loan and bank for FD)
“Banks usually do not raise term deposit rates substantially because there are not many takers for loans. As a result, they have ample liquidity and once credit growth starts taking place, then they would perhaps be in need of more money – for which they could further raise the term deposit rates,” says Sreedharan Sundaram, Founder of Wealth Ladder Direct and SEBI-registered investment advisor.
As we can see in the table above, home loan rates charged by HDFC rose from 6.7 percent to 8.6 percent, a whopping 190 basis points. At the same time, the term deposit interest rates barely rose from 4.4 to 4.65 percent and from 5.2 percent to 5.5 percent based on the tenor chosen.
Even the state lenders such as SBI showed a similar trend. When home loan interest rates rose from significantly in the past six months, the interest rates on term deposits hovered around the same level of 5-6 percent based on the tenor chosen.
