As private banks gain share in the banking system’s deposit base, they have begun to close the gap with public sector banks (PSBs) in terms of how much they pay for deposits.
According to Reserve Bank of India (RBI) data on bank group-wise interest rates, the difference between the weighted average domestic term deposit rates of the two sets of banks fell to three basis points (bps) in November 2020 from 32 bps in December 2019.
The data also point to poor transmission of rate cuts, with the weighted average lending rate (WALR) on outstanding rupee loans declining only 69 bps between February 2020 and November 2020 even as the repo rate fell 115 bps over the same period.
Private lenders are now comfortable paying less on term deposits even as growth in this category of deposits has been slowing for them in FY21 so far. The central bank’s recent Trend and Progress Report attributed the moderation in term deposits to easing interest rates and the lure of returns on competing asset classes.
“Term deposit growth of PVBs decelerated sharply even as it quadrupled in PSBs,” the report said.