Probably taking a cue from IndusInd Bank, Kotak Mahindra Bank has reduced its interest rate on savings deposits below ₹1 lakh by 0.5 percentage points to 5 per cent.
“With effect from November 1, 2014, the interest rate on daily balances up to ₹1 lakh in your savings accounts will be revised to 5 per cent per annum,” the bank informed its customers. Daily balances over ₹1 lakh will continue to earn 6 per cent interest a year.
Earlier the bank offered 5.5 per cent on deposits up to ₹1 lakh.
“Generally, short-term interest rates have moderated a bit and in the money markets, liquidity has improved significantly. Also credit growth has been tepid,” said Mohan Shenoi, Head — Treasury and Global Markets, Kotak Bank.
He said substantial reduction in interest rates depend on a decision on policy rates by the RBI. So long as policy rates stay where they are, interest rates will stay at current levels.
“We have also reduced our term deposits by 10-15 basis points in select pockets, which is a regular process,” Shenoi added.
In September, IndusInd Bank reduced its interest rate on savings deposits to 4.5 per cent from 5.5 per cent per annum earlier on daily balance of up to ₹1 lakh. On balance above ₹1 lakh, IndusInd Bank maintains an interest rate of 6 per cent.
After the interest rates on savings bank accounts were deregulated by the RBI in 2011, banks such as IndusInd Bank, Kotak Mahindra Bank and YES Bank were among the first to increase rates above the regulator-stipulated 4 per cent.
YES Bank continues to offer an interest rate of 7 per cent a year on savings bank account balance of ₹1 lakh and above, and 6 per cent a year for balance below ₹1 lakh.
The higher interest rate has helped these banks improve their growth in savings deposits, thereby spurring their retail client base. However, higher deposit rates increases the cost of funds for banks.