The success of some private sector bank in mobilising savings bank (SB) deposits through innovative products and services, including offering higher rate of interest on balances above a certain limit, may prompt other banks to introduce them as mobilising resources is proving a challenge.
For example, private sector banks IndusInd Bank, Kotak Mahindra Bank, AU Small Finance Bank (SFB) and Suryoday Small, among others, are offering higher interest rate on SB deposits above a certain threshold. Currently, most banks, including public sector banks. offer 2.70-3 per cent interest on SB deposits.
While IndusInd Bank offers 3.50 per cent interest on SB deposit with daily balance of up to ₹1 lakh, it is offering higher interest on daily balance above ₹1 lakh.
On daily balance above ₹1 lakh up to ₹5 lakh, and above ₹5 lakh up to ₹10 lakh, the Bank is offering 5 per cent and 6 per cent interest, respectively.
Further, on daily balance above ₹10 lakh up to ₹5 crore, the Bank is offering 6.75 per cent interest. On daily balance above ₹5 crore up to ₹100 crore, flat rate of 6.75 per cent is applicable on entire balance.
Alternative investment avenues becoming more attractive
In his latest bi-monthly monetary policy statement, RBI Governor Shaktikanta Das noted that alternative investment avenues are becoming more attractive to retail customers and banks are facing challenges on the funding front with bank deposits trailing loan growth.
“As a result, banks are taking greater recourse to short-term non-retail deposits and other instruments of liability to meet the incremental credit demand.
“This, as I emphasised elsewhere, may potentially expose the banking system to structural liquidity issues,” Das said.
Banks may, therefore, focus more on mobilisation of household financial savings through innovative products and service offerings and by leveraging fully on their vast branch network, he added.
Currently credit growth is outpacing deposit growth. As on July 26, 2024, credit growth of all scheduled banks was at 13.56 per cent year-on-year against deposit growth of 10.38 per cent.
Kotak Mahindra Bank has an “ActivMoney” product, whereby excess amount in a depositor’s savings/current bank account, above a predetermined threshold, is automatically transferred into a Fixed Deposit, which can fetch up to 7 per cent interest.
By default, FD in multiples of ₹5,000 will be created for a tenure of 180 days. The interest on the FD is paid as simple interest.
Banking expert V Viswanathan opined that while average minimum balance in savings bank can continue to earn the current interest rate, depositors maintaining more than the average balance can be paid higher.
“For example, 2.7 per cent can be paid for minimum balance maintained in SB account.
But depositors maintaining double the average balance can be paid 3 per cent, treble the average 3.5 per cent and so on, keeping the maximum at 4 per cent, equivalent to post office rates,” he said.
While AU SFB offers 3 per cent interest on SB deposit with balance of up to ₹1 lakh, it is offering higher interest on balance above ₹1 lakh.
On balance from ₹1 lakh to less than ₹5 lakh, the Bank is offering 4 per cent; from ₹5 lakh to less than ₹10 lakh (5 per cent); from ₹10 lakh to less than ₹1 crore (7 per cent); from ₹1 crore to less than ₹5 crore (7.25 per cent); and from ₹5 crore to less than ₹10 crore (7 per cent).
While Suryoday SFB offers 3 per cent interest on SB deposit with daily closing balance of up to ₹1 lakh, it is offering higher interest on balance of ₹1 lakh.
On daily closing balance above ₹1 lakh up to & including ₹5 lakh, the Bank is offering 5 per cent; above ₹5 lakh up to & including ₹10 lakh (7.25 per cent); above ₹10 lakh up to & including ₹5 crore (7.50 per cent); above ₹5 crore up to & including ₹25 crore (7.75 per cent); and above ₹25 crore (7.25 per cent).