Banks Hit the Brakes on FD Rates—Investors Left in Slow Lane

Private sector banks made an instant revision in fixed deposit (FD) interest rates following the recent Reserve Bank of India rate cut. HDFC, ICICI, IDFC First, and Kotak Mahindra reduced FD rates by 10-35 basis points, which impacted retail depositors.

Large Realignments at Banks
HDFC Bank had reduced its FD rates by 25 basis points in all tenors, with its one-year deposit rate at 6.25 percent.

ICICI Bank also reduced its one-year deposit rate by 25 basis points to 6.25 percent and a steeper reduction of 35 basis points for 18 months to two years' deposits.

IDFC First and Kotak Mahindra Bank reduced their one-year FD rates to 6.25 percent, trimming their rates by 15 to 30 basis points.

State-owned banks like Canara Bank and Indian Bank have also reduced their rates, with Indian Bank reducing its rate on deposits between one and two years by 50 basis points to 6.60 percent.

Impact on Retail Depositors
The rate reductions are a reflection of banks' reaction to the decreased benchmark interest rates, impacting fixed deposit yields.

Savings account interest rates have also been revised, with HDFC Bank reducing its rate on balance above ₹50 lakh by 50 basis points to 2.75 percent.

The reforms come after the banks fix their deposit rates according to the monetary policy direction of the RBI to spur lending and economic growth.

Broader Market Effects

The RBI move to cut the repo rate by 50 basis points has created a chain reaction on the deposit as well as lending rates.

Though FD rates have decreased, borrowers can be assisted through reduced loan interest rates as banks alter lending policies.

Pass-through of the rate cuts to lending rates has been sluggish, with banks balancing profitability and liquidity. 

Sources: Economic Times, Business Standard, Moneycontrol.