The Reserve Bank of India (RBI) increased the repo rate by 25 basis points, resulting in its rise to 6.50%. The latest move is expected to make borrowing expensive, leading to higher equated monthly instalments (EMIs).
Repo rate is the rate at which the RBI lends money to commercial banks.
However, repo rate increase also sees the interest rates on deposits like fixed deposit (FD) increase.
While this may bring more EMI burden for borrowers, some believe it can bring good news for the silent savers looking to invest in FD.
“We expect banks to gradually increase rates across deposits over the next quarter as they change focus to attracting sustainable liabilities," said Akshar Shah, Founder, Fixed , a newly launched investing platform for fixed income products.
Even before today’s announcements by the RBI, recently some banks increased their FD rates.
Jana Small Finance Bank, one of the small finance banks in India, has also announced an increase in interest rates on regular fixed deposits, effective February 1, 2023 and on FD Plus, which are effective from February 6, 2023.
The Bank has hiked the interest rate on regular fixed deposits from 7.85 % to 8.10%. The interest rate on FD Plus (Non-Callable) has gone from 7.85% to 8.25%.
Bandhan Bank had increased the interest rate on fixed deposits on January 5, 2023. A day before this, on January 4, Kotak Mahindra Bank raised interest rates on a range of tenors by up to 50 bps.
Many other public and private sector banks and NBFCs announced the increase in FD interest rates in January.
Poonam Tandon, CIO, IndiaFirst Life Insurance, said, “We could see an increase in FD rates by the banks especially as this is the last quarter of the year. Also with surplus liquidity being on the lower side, we could expect more banks hiking FD rates.”
With the hike in the repo rate, banks and NBFCs that offer FD products, are likely to hike their interest as well.
The central bank in 2022 raised the repo rate five times by 225 basis points in total to 6.25 %.
Several banks, including, HDFC Bank, PNB and ICICI Bank, had raised their interest rates on fixed deposits as well as loans.
PNB announced a rise in the interest rates for savings accounts and fixed deposits on January 1. The public-sector lender raised interest rates on fixed deposits by up to 50 basis points for a range of tenures.
Interest rates on fixed deposits below Rs 2 crore at the PNB (per annum) effective from January 1, 2023:
1 year: For General Public - 6.75 %; For Senior Citizens - 7.25 per cent
Above 1 year to 665 days: For General Public - 6.75 %; For Senior Citizens - 7.25 per cent
HDFC Bank interest rates on fixed deposits less than Rs 2 crore (per annum), effective from January 24, 2023:
1 Year to less than 15 months: For General Public - 6.60%; For Senior Citizens - 7.10%.
15 months to less than 18 months: For General Public - 7.00%; For Senior Citizens - 7.50%
Interest rates on fixed deposits below Rs 2 crore at ICICI Bank (effective December 16, 2022):
1 year to 389 days: For General Public - 6.60 %; For Senior Citizens - 7.10 per cent
390 days to less than 15 months: For General Public - 6.60 %; For Senior Citizens - 7.10 %
15 months to less than 18 months: For General Public - 7.00 %; For Senior Citizens - 7.50 %.
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