HDFC Bank, India's second largest bank by assets, has lowered interest rate on savings accounts by 25 basis points to 2.75% which is the lowest among peers in the private sector, updated information on the bank's website showed.
The reduction in rate is effective from April 12, the bank said on its website. It comes just days after a second consecutive benchmark repo rate cut by the Reserve Bank of India (RBI) this year announced on Wednesday.
The reduction brings HDFC's savings bank rate below its peer large private sector banks ICICI Bank and Axis Bank which are both currently offering 3% minimum interest rate on balances below Rs 50 lakhs.
A bank did not immediately reply to an email seeking comment.
HDFC Bank has been trying to garner more term deposits after it took over its home loan parent HDFC in 2023. Lower savings rate could also force more depositors to move towards higher yielding term and recurring deposits. Though the banking system in general has been facing a challenge with depositors seeking higher returns through investments in mutual funds and other capital market instruments.
"With cuts in the repo rate and consequent decline in lending rates linked to external benchmarks, banks have to reduce their funding costs to protect their net interest margins. However, the competition for retail deposits will remain high, given the elevated credit to deposit ratio for banks and declining liquidity coverage ratio. As a result, the rates on retail term deposits may go down with a considerable lag," said Anil Gupta, co group head, ICRA.
After its takeover of HDFC in July 2023, the bank's credit deposit (CD) ratio shot up beyond 100% as the huge mortgage loans it inherited could not match the amount of deposits. The bank's CD ratio has since corrected to 98% though still higher than the 85% to 87% it was prior to the merger.
Gupta said the cut in the savings deposits typically do not lead to an outlfow for banks because depositors are not necessarily sensitive to interest rates. "Further a cut in savings deposit rate results in an immediate repricing of savings deposits base unlike term deposits base which gets repricecd over a longer period after rate cut," Gupta said.
For HDFC Bank the reduction in savings rates will significantly lower the bank's overall cost of funds since nearly 34% of its deposits are in the form of CASA of which nearly 69% or Rs 6 lakh crore is savings account deposit. The bank had last lowered its savings rate by 25 basis points in June 2020 amidst a liquidity glut following the Covid pandemic.
HDFC's cut brings its savings bank rate closer to public sector giants State Bank of India and Punjab National Bank which offer a minimum 2.70% on savings account deposits since 2022. HDFC Bank's rate is on par with Bank of Baorda which offers 2.75% on deposits up to Rs 50 crore since February 27 last year.
The reduction in rate is effective from April 12, the bank said on its website. It comes just days after a second consecutive benchmark repo rate cut by the Reserve Bank of India (RBI) this year announced on Wednesday.
The reduction brings HDFC's savings bank rate below its peer large private sector banks ICICI Bank and Axis Bank which are both currently offering 3% minimum interest rate on balances below Rs 50 lakhs.
A bank did not immediately reply to an email seeking comment.
HDFC Bank has been trying to garner more term deposits after it took over its home loan parent HDFC in 2023. Lower savings rate could also force more depositors to move towards higher yielding term and recurring deposits. Though the banking system in general has been facing a challenge with depositors seeking higher returns through investments in mutual funds and other capital market instruments.
"With cuts in the repo rate and consequent decline in lending rates linked to external benchmarks, banks have to reduce their funding costs to protect their net interest margins. However, the competition for retail deposits will remain high, given the elevated credit to deposit ratio for banks and declining liquidity coverage ratio. As a result, the rates on retail term deposits may go down with a considerable lag," said Anil Gupta, co group head, ICRA.
After its takeover of HDFC in July 2023, the bank's credit deposit (CD) ratio shot up beyond 100% as the huge mortgage loans it inherited could not match the amount of deposits. The bank's CD ratio has since corrected to 98% though still higher than the 85% to 87% it was prior to the merger.
Gupta said the cut in the savings deposits typically do not lead to an outlfow for banks because depositors are not necessarily sensitive to interest rates. "Further a cut in savings deposit rate results in an immediate repricing of savings deposits base unlike term deposits base which gets repricecd over a longer period after rate cut," Gupta said.
For HDFC Bank the reduction in savings rates will significantly lower the bank's overall cost of funds since nearly 34% of its deposits are in the form of CASA of which nearly 69% or Rs 6 lakh crore is savings account deposit. The bank had last lowered its savings rate by 25 basis points in June 2020 amidst a liquidity glut following the Covid pandemic.
HDFC's cut brings its savings bank rate closer to public sector giants State Bank of India and Punjab National Bank which offer a minimum 2.70% on savings account deposits since 2022. HDFC Bank's rate is on par with Bank of Baorda which offers 2.75% on deposits up to Rs 50 crore since February 27 last year.
You may also like
Best way to dry clothes outside avoids 1 mistake that ruins your favourite clothes
Dasettante Cycle is now on OTT: Where to stream Malayalam comedy-drama
Initial probe suggests involvement of Bangladeshi miscreants in Murshidabad violence: Govt sources
Baloch rebels used US weapons to hijack Pakistan's Jaffar Express: Report
Fake payment apps: How to identify and stay safe
