Context:
Banks & NBFCs begin cutting deposit rates, signaling an expected drop in interest rates. RBI expected to cut the repo rate on April 9, following a February reduction. Liquidity improving as RBI purchases bonds worth ₹1.4 lakh crore since January, with an additional ₹80,000 crore buyback announced.
Deposit Rate Cuts by Major Lenders
- HDFC Bank: Ended special deposits; rates reduced from 7.35% to 7% (35-month deposits) and 7.40% to 7% (55-month deposits).
- Yes Bank: Reduced fixed deposit rates by 0.25 percentage points.
- Bajaj Finance: Lowered rates by 0.25 percentage points on long-tenure deposits; 42-month FD now at 8.15% (from April 10).
- Bandhan Bank: Savings deposit rates now 3-5% (previously 6%).
Government Small Savings Schemes Unaffected
- RBI Bonds & Senior Citizen Savings Scheme (SCSS) still offer 8.2% for April-June.
- Investors advised to lock in current high FD rates for long tenures.
Liquidity & Market Impact
- Systemic liquidity moved from deficit to surplus (March deficit: ₹1.3 lakh crore).
- Open Market Operations (OMOs) by RBI contributing to better liquidity conditions.
- First fiscal quarter sees slow credit growth, allowing banks to reduce deposit rates without scrambling for funds.
Investment Implications
- Fixed Deposits vs. Government Bonds:
- AAA-rated Bajaj Finance FD: 8.4% vs. 10-year government bond yield: 6.5%.
- Spread of 1.9 percentage points makes FDs attractive.
- Debt Funds vs. Fixed Deposits:
- Debt fund returns vary with market conditions, while FDs offer stable returns.
- Retirees & conservative investors prefer FDs due to regular cash flow.
Rate Cuts & Market Adjustments
- Interest rate transmission underway due to surplus liquidity.
- More banks & NBFCs likely to lower deposit rates soon.
- Borrowing rates expected to decline, boosting credit growth in coming months.
