HDFC Bank cut its interest rate by 50 basis points (half a per cent) to 3.5 per cent on savings bank deposits for balances up to Rs 50 lakh.
This makes it the seventh to do so after State Bank of India (SBI) acted last month. Axis Bank, Bank of Baroda (BoB), Indian Bank, Karnataka Bank, Kotak Mahindra Bank and most recently YES Bank had preceded it.
Axis, BoB and HDFC Bank all followed SBI’s 50 bps cut to 3.5 per cent from the existing four per cent, for varying deposit amounts.
HDFC Bank said its revision would be with effect from this Saturday. Customers maintaining a savings bank account balance of Rs 50 lakh and above will continue to earn interest at four per cent yearly. The revised rates will apply to both resident and non-resident customers.
Banks have been cutting interest on term deposits for a little over two years. Demonetisation brought huge amounts into savings bank accounts as a one-time benefit. After that, banks substantially cut lending rates in the March quarter. However, tepid demand for loans and high credit costs put the pressure on margins. Bank managements then began to think of next steps to protect these. And, a long spell of lower inflation offered a chance to look for reductions in the savings rate.
The question was who would take a lead. SBI’s top executives had been debating on the issue for over a quarter before taking a plunge at end-July.
The reduction in savings deposit rates is a result of increasing pressure on the interest margin of banks, especially public sector ones. The decreasing interest income, as well as provisions for bad loans, added to the concerns.
“The revision in savings bank rate would enable the bank to maintain the existing MCLR (marginal cost-based lending rate),” SBI had said. It added this would benefit a large segment of small borrowers — in small firms, agriculture and affordable housing.
A private bank executive says a savings account is an operative one to make payments for expenses. The quality of service and nature of the relationship with customers mattered more than the interest rates.