Little to choose from

Anup Menon

TWO weeks after the RBI cut the bank rate and the cash reserve ratio (CRR), most public sector banks decided to cut the interest rates on their fixed deposit programmes.

However, there has been no significant move from private and foreign banks in this direction. Given this situation, a relook at the average interest rates on offer:

At the shorter end of the deposit rate curve, foreign banks score over the others. The average rate on offer for a six-month deposit is 8.84 per cent for foreign banks against 6.47 per cent for PSBs. The highest rate on offer in the less-than-six-month category is 10 per cent by Credit Lyonnais. The lowest rate in this same period is 8 per cent by ANZ Grindlays, Standard Chartered and The Bank of Tokyo. This rate is 50 basis points (0.50 per cent) higher than the maximum rate from the PSBs, which is 7.50 per cent.

Private sector banks are neck-and-neck with foreign banks, as indicated by their rates. The average deposit rate for a six-month deposit is 8.45 per cent with a maximum of 9.75 per cent.

Trends in the longer end of the deposit rate curve indicate that the rates offered by the foreign, public and private sector banks more or less converge towards the 10 per cent-mark.

Consider this. The average foreign bank rate for a deposit beyond three years is 10.34 per cent. The maximum rate on offer in this segment is 12.50 by the Bank of Ceylon and the minimum 8.25 by Standard Chartered. In the case of the PSBs, the average rate for the same period is around 10 per cent with a maximum of 11 per cent and a minimum rate of 9 per cent.

Similarly, the average rate on offer on the longer-end maturities for private sector banks is 10.72 per cent with a maximum 11.50 per cent and a minimum of 10 per cent.

This being the case, investors have little to choose from at this end of the tenor. Given that the divergence between the shorter and the longer end rates is not high, investors can consider investing in the former. On the other side, the chances of some foreign and private banks resorting to a rate cut cannot be ruled out. This gives investors an opportunity to lock onto a longer-term deposit at a higher rate.