1– 3 Year Deposits Dominate As Banks Near Peak Interest Rates
“Consumers exhibit a preference for placing deposits in the 1–3-year category" : Kotak Institutional Equities
Mumbai: Consumers are exhibiting a preference for placing deposits in the one- to three-year category, with lenders also favouring this tenure. A breakup of the deposits by tenor for 4QFY25 showed that about 65% of the overall deposits contracted are in the one- to three-year bucket. Moreover, 80% of individual term deposits had ticket sizes between ₹1 lakh and ₹15 lakh. The fourth quarter of FY25 saw a 5-percentage-point jump in deposits in the 7–8% interest-rate bucket, with some signs of a slowdown in non-individual deposit movement.
According to a study by Kotak Institutional Equities, “Consumers exhibit a preference for placing deposits in the 1–3-year category. A part of this can probably be explained by the interest rates offered, where the interest rate differential is likely discouraging consumers from placing longer-term deposits. Lenders are also much more comfortable in this bucket, given that the linkages to loan yields are breaking with the introduction of external benchmark-linked loans.”
Notably, household deposits are still growing at a slower pace than overall deposit growth, with a higher contribution to growth coming from the financial sector, which tends to be more volatile and wholesale in nature.
The share of individuals in overall term deposits is marginally lower quarter-on-quarter at 50%. Additionally, 80% of overall term deposits came from urban/metropolitan markets. Public sector banks have about 70% of their deposits from households, while private banks have about 55%. While households dominate deposits at around 60%, the growth remains sluggish.
“Deposit rates may have peaked for the system, judging by the weighted average cost of term deposits. A comparison of current term deposit interest rates with the headline rates offered by banks suggests we are nearing peak deposit rates. Incremental changes in term deposits are likely to be of smaller quantum,” added Kotak.