No rise in interest rates

Anup Menon

IF YOU are looking for a change in the rates on offer by the banks, then you are staring disappointment in the face.

The bankers have not budged from the view that it is not worth paying more interest to their depositors. In other words, the deposit rate scenario in the banks has remained more or less unchanged over the last month. Considering that the inflation rate continues to remain fairly high, investors ought not to get locked into longer-end offers from banks. As far as the investor is concerned, the real rate of return will not be substantial. From the point of view of incremental benefits, the average rates on offer by public sector banks have registered higher growth rates compared to both private and foreign banks. Thus, with few investments options of a similar risk profile, investors have hardly any choices.

At the shorter end of the deposit rate curve, the gap between the private sector banks and the foreign banks narrowed further since last month. The average rate on offer for a 179-day deposit remained at around 8.81 per cent. However, for the same period, the average rate on offer from the private banks rose from around 8.15 per cent to 8.21 per cent. There has also been a marginal improvement in the rates offered by the public sector banks from 6.61 per cent to 6.71 per cent. The maximum rate on offer in this segment continues to remain at 9.50 per cent offered by the Global Trust Bank.

In the middle of the curve the spreads are thinner. In effect, the rates are converging as the term to maturity increases. The private sector banks have the upper hand in this segment. The average rate on offer for the 1-2 year tenures increased marginally to 9.84 per cent from 9.81 per cent. The foreign banks are fast catching up, offering an average rate of 9.44 per cent against 9.39 per cent the previous month. Meanwhile, the public sector banks offered around 8.72 per cent compared to 8.66 per cent on offer in October.

At the longer end of the curve the rate differentials showed signs of converging towards the 10 per cent-mark. The private sector banks have offered 10.35 per cent and the public sector banks are not far behind with around 9.98 per cent. However, the average rates of the foreign banks dropped from around 9.92 per cent in October to around 9.50 per cent.