Bank loan

Demand for bank loans hits 9-year high, now deposit rates could rise 1.75-2.25%

Demand for bank loans has reached its highest level in nine years, but deposits are not growing at the same pace. For this reason, there is a shortage of funds from the banks. In such a situation, deposit interest rates should increase. Deposit rates can be increased by 1.75-2.25% in one year.

According to the latest data from the Reserve Bank, in the current financial year from April 1 to August 26, banks have disbursed loans worth Rs 5.66 lakh crore. This is 4.8% more than the loan disbursed during the same period last year. There has been a 0.5% drop in this since August of last year. Not only that, it is 15.5% more than the loan disbursed through August 26, calendar year 2021. This is the highest loan disbursement figure since November 1, 2013.

The difference between the repo rate and the deposit rates has started to decrease

  • In the current fiscal year to August, the deposit rate has increased from 0.30 to 0.60%. Meanwhile, the repo rate rose from 1.40% to 5.4%.
  • Yes Bank, Axis Bank, Bank of Baroda, ICICI Bank and Union Bank have raised FD rates by 0.30-0.50% in recent weeks.
  • The gap between repo and deposit rates is gradually narrowing. It was 0.80 to 1.0% in July. Now it is down to 0.6-0.8%.

The deposit rate could return to 2018 levels
Three-year FD rates are approaching the 2018 level of 7.25-8.5%, compared to 5.5-6.25% currently. “If banks raise lending rates in line with rising repo rates, then in the next 6-9 months deposit rates should rise rapidly,” one banker said.

The repo rate could increase by 0.75% by March 2023
Banks estimate that by March 2023, the repo rate could rise another 0.75%. After that, the repo rate decline should start. “There should be a big hike in the deposit rate from January next year,” said a private banker.