There have been a number of announcements by banks in India recently that they would be cutting their fixed deposit rates in December. The latest bank to make a similar announcement is Corporation bank, a public sector bank. As reported in Livemint.com:

Corporation Bank said that it would cut deposit rates by 50 basis points across all maturities beginning next month.

“We have decided to slash term deposit rates by 0.5%,” the newly appointed Chairman and Managing Director of Corporation Bank J M Garg said.

“Following the reduction, the peak rate would come down to 10%,” he said.

The bank has already reduced the benchmark lending rate by 75 basis points beginning this week. The Prime Lending Rate of the bank has been revised downwards to 13.25% from earlier level of 14%.

Largest public sector bank, State Bank of India, has already announced new fixed deposit rates that would be effective from December 1. As reported by Ratekhoj earlier:

State Bank of India, India’s largest public sector bank, has announced a reduction in its fixed deposit rates that will take effect from December 1, 2008. The cuts in the fixed deposit rates range from 25bps (0.25%) to 50bps (0.50%) for terms between 91 days and 10 years. This reduction in fixed deposit rates follows cuts in interest rates on loans by several banks in India recently.State Bank of India has reduced its interest rate for the deposit period of 91 days to 180 days from 7.50% to 7.00%. Rates for a term of 181 days to less than 1 year have gone down from 8.50% to 8.00, while the rates for a term of 1 year to less than 2 years have gone down from 10.00% to 9.50%. Rate for a term of 2 years to less than 1000 days will be 9.00% reduced from 9.50% and fixed deposit rate for a term of 1000 days will be 10.00% from 10.50%. The interest rate for a fixed deposit with a term of 1001 days to less than 3 years will be 9.00% reduced from 9.50%. Fixed deposits with a term of 3 years to less than 5 years will now yield 9.25% down from 9.75% and those with a maturity of over 5 years upto 10 years will be 9.00% which is down 25bps from before (9.25%).

Another bank that has already announced cuts in its fixed deposit rates from December 1 is Canara Bank which is also a public sector bank. As reported in The Economic Times, a Canara Bank official announced cuts in its FD rates:

The interest rates on deposits of 500 days to two years has been scaled down from 10.5 per cent to 10 per cent with effect from December 1, 2008, the official said.

Other public sector banks have announced impending cuts in their fixed deposit interest rates as reported in The Telegraph on November 5:

Banks are slashing their deposit rates even as they trim their lending rates.

Potential depositors may have a small two-week window within which they can still plonk down their surplus cash in fixed deposits and continue to earn interest at existing rates of around 10.5 per cent.

On Wednesday, four public sector banks — the Bank of India (BoI), the United Bank of India, Syndicate Bank and Canara Bank — indicated that they intended to cut their deposit rates by 50 basis points, or half a percentage point.

Canara Bank and the BoI said the deposit rate cut would be effective from December 1.

The United Bank of India’s executive director T.M. Bhasin said the bank would slash its peak deposit rate, which is 10.60 per cent at present, by the second week of this month.

“We had increased the deposit rate to 10.60 per cent from 10.50 per cent from the start of this month. We want to give our customers some time to deposit their money in the scheme before we close it or reduce the rate,” Bhasin said.

Banking mavens said Syndicate Bank would also cut its deposit rates by the end of the month. “Banks will stop giving a 10 per cent plus rate on deposits after the first week of December,” George Joseph, chairman of Syndicate Bank, said on the sidelines of a seminar organised in Calcutta by the Confederation of Indian Industry.

“Deposit rates will have to come down if banks reduce lending rates,” Joseph said.

Sources said the BoI had not yet decided on the maturity tenures that would be impacted by the rate rollback. It was only recently that the bank had raised the deposit rates by 25 to 50 basis points on certain maturities.

It’s clear that these pre-announcements of cuts will help the public take advantage of the higher fixed deposit rates before the interest rates start going down. Fixed deposit rates are at their highest in recent months with DBS Bank currently offering the highest FD interest rate of 11.25% (11.75% for senior citizens) for a term of 1 to 2 years among all banks in India. Among public sector banks, State Bank of Bikaner and State Bank of Hyderabad are offering the highest interest rate of 10.75% for fixed deposits. In the past, banks have simply announced rate cuts without informing the public in advance.

These pre-announcements may also help banks mop up fixed deposit investments from the public who may want to take advantage of the higher rates being offered currently.

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