Indian Bank is raising interest rates on 555-day and 777-day term deposits by 15 basis points effective October 23. This decision is part of the bank’s strategy to strengthen its domestic funding mix after reducing its reliance on bulk deposits during the second quarter. The move stands out against the broader trend of surplus liquidity currently seen across the Indian banking system.
Indian Bank has announced an interest rate increase of 15 basis points on specific term deposits, a move that comes shortly after recent regulatory policy updates from the Reserve Bank of India. Starting October 23, the bank is adjusting rates for two specific deposit schemes to attract more stable domestic funding.
Under this new structure, the interest rate for 555-day deposits will rise to 6.80% from 6.65%. Similarly, the 777-day deposit scheme will now offer an interest rate of 6.75%, up from the previous 6.60%. For investors, this adjustment reflects the bank's effort to manage its deposit profile rather than a reaction to the wider banking sector's liquidity situation.
Strategic Funding Shift
This rate hike is a calculated step following the bank's performance in the second quarter. During that period, Indian Bank actively reduced its reliance on bulk deposits, offloading approximately Rs 10,000 crore. Bulk deposits are generally considered more volatile and expensive compared to retail or smaller term deposits. By offering slightly higher rates on these specific tenors, the bank aims to replace that bulk funding with more granular and stable deposits from individual savers.
Managing Director Binod Kumar has previously emphasized the need to stabilize the bank's balance sheet. While the bank has utilized alternative funding routes, such as securing roughly Rs 21,000 crore through Foreign Currency Non-Resident-Bank (FCNR-B) deposits, the latest move shows a focused effort to bolster its domestic retail funding base.
Divergence from Sector Trends
What makes this decision notable is that it runs counter to the general environment in the Indian banking system. Most lenders are currently operating in a landscape characterized by surplus liquidity, which often puts downward pressure on deposit rates. While the banking sector has seen significant inflows of foreign currency deposits, leading to liquidity absorption measures by the regulator, Indian Bank is prioritizing the replenishment of its domestic funding.
For investors and market observers, the key monitorable will be the impact of these higher rates on the bank's margins. While offering higher interest rates helps attract deposits, it also increases the bank's cost of funds. Investors will likely look for future updates to see if this strategy successfully improves the bank's deposit stability without putting excessive pressure on its net interest margins. The ability to balance this cost while maintaining steady credit growth will remain a central point of interest in coming quarters.