Banks compete fiercely, raising fixed deposit interest rates

In an effort to stimulate deposit growth, Indian banks have increased their interest rates on fixed deposits (FDs), responding to rising competition in the banking sector. Leading banks like State Bank of India (SBI) and HDFC were the initial ones to elevate these rates, triggering a trend that smaller banks such as IDBI also adopted. This competitive atmosphere among banks is driven by the need to attract more deposits as the growth of credit outpaces deposit growth, which was previously a cause for concern within the banking system. SBI has taken a significant step by introducing a new category specifically for super senior citizens aged over 80 years. This initiative offers an attractive interest return of 10 basis points above the standard rate provided to regular senior citizens. IDBI Bank has also incorporated this scheme, which was made effective on January 13, 2025. This development underscores banks' commitment to catering to the older demographic while finding ways to differentiate themselves in a saturated market. For account holders aged 60 and above, current offerings include interest rates of 7.25 percent for fixed deposit periods of three and four years, while rates of 7 percent are applicable for deposits of five to ten years. The urgency of this competitive maneuvering has reached the attention of financial authorities; the Finance Minister, Nirmala Sitharaman, emphasized the importance of aligning deposit growth rates with the rising rates of credit expansion. As of recent months, the deposit growth rate was lagging behind the increase in credit volume by about 3 to 4 percent, presenting risks of asset-liability mismatches within the banking infrastructure. Banks are thus prompted to reassess their strategies to ensure a balanced growth trajectory that meets the ongoing demands of their customers in this evolving economic landscape.