Interest rates stable

Anup Menon

OCTOBER was uneventful as far as the bank deposit market was concerned. There was no major change in the interest rates on offer. On the other hand, the inflation rate as measured by the consumer price index moved past the seven per cent-mark in early October. There are ominous signs of the savings available for consumption slowly diminishing. However, with the flagging stock markets, there is also a dearth of other investment opportunities.

At the shorter end of the deposit rate curve, the gap between private sector and foreign banks stays narrow. There has been no major change in the interest rates on offer in this segment. The average rate on offer for a 179-day deposit in a foreign bank works out to 8.81 per cent compared to 8.15 per cent offered by private sector banks. The public sector banks continue to lag, offering an average rate of 6.61 per cent, 1.54 percentage points less than the private sector banks. The maximum rate on offer is 9.50 per cent, from Global Trust Bank.

In the middle of the curve, the differences in the interest rates on offer are converging. On an average, the private sector banks tend to offer better rates. However, the foreign banks are giving the private banks a run for their money. The average rate on offer for a deposit of between one and two years in the private sector banks works out to around 9.81 per cent compared to 9.39 per cent offered by the foreign banks for the same maturity. The public sector banks are not far behind, offering on an average 8.66 per cent. The maximum rate on offer in this segment continues to remain around 10.5 per cent offered by a couple of private sector banks.

At the longer end of the curve, the rate differentials are not significant. The rates on offer continue to converge at the 10 per cent-mark. The private sector banks continue to lead the pack, offering on an average around 10.33 per cent. Surprisingly, the average rate on offer by the public sector banks, at 9.99 per cent, is higher than that compared to foreign banks which offer on average around 9.92 per cent. There has been no major change in this segment for some time and the trend seems set to continue.