Mrunal Manmay Dash

Small finance banks (SFBs) are in the lead of the hunt again. This time for high Fixed Deposit (FD) rates. Lenders are hiking interest rates on FDs, returning them to levels from before COVID, in an effort to entice retail depositors.

For example, Ujjivan Small Finance Bank recently announced it will pay an 8 percent interest rate on its 560-day deposits for regular customers and 8.75 percent for senior citizens. With this, Ujjivan ranked among banks that offer the highest rates among SFBs at this point.

Others aren't far behind either. On November 15, Jana Small Finance Bank announced that it would grant senior citizens FDs with interest rates of up to 8.5 percent. Additionally, it will provide regular depositors 7.75–8.35 percent under the Fixed Deposit Plus programme.

As per a report in moneynontrol, liquidity tightness in the banking system is driving banks on a rate hike spree. The gap between the expansion of credit and deposits has been growing. According to data from the RBI, as of November 4, deposit growth and credit growth were at roughly 8% and 16.81%, respectively, year over year (YoY).

Faced with fierce competition, banks are tempting customers with higher interest rates, holiday specials, etc. A Canara Bank branch manager was featured in a social media video that went viral in October, promoting the bank's "666 days" fixed-rate deposit (FD) programme, noted the financial website.

Though inflation hasn’t shown any sign of abating so far, the RBI anticipates the softening to kick in by the beginning of the upcoming fiscal year. Although the rhetoric used to describe policy may be a little less hawkish, it is reasonable to predict that another rate increase of 25 to 50 basis points will take place in December. 100th of a percentage point is one basis point. Banks might soon need to implement another round of interest rate increases if that occurs.