Demand for Renewal of Fixed Deposits

By BankBazaar | May 14, 2012

With panic rising amongst investors in the country, people who have invested in fixed deposits are afraid of a further slash in interest rates and are hence rushing to renew their fixed deposits at the existing rates of interest. Banks are further trying to focus on their Current and Savings Account also known as the CASA base, while balancing between the management of renewing fixed deposits of their existing and old banking customers. Financial analysts consider this to be smart moves by investors and people need to rush before interest rates fall further down. Even if the current interest rates on fixed deposits are to be considered, people are expected to make a good margin of profit even if you take the current rates of interest in consideration. Before the rate of inflation further spirals down, it is advisable to bank your funds in high return deposits. But be prepared for any further rate cuts by banks that are expected in the near future. While you make money through these rates of interest, bear in mind that these rates of interest will surely spiral downward in the near future. Another reason why the consistently high rates of interest of banks are coming down can be attributed to the shuttle of funds from savings and current accounts to fixed deposits by customers. As a result, banks lower their deposits under their Current and Saving Account or CASA.

This means that with a low ratio of CASA deposits, banks get really concerned due to the fact that these deposits serve to be the cheapest sources of money for banks. No rate of interest is applied on current account deposits while savings bank deposits enjoy a comfortable rate of interest. To make up for this drop in rates of interest, banks may reduce their rates of interest on fixed deposits further down. But there is not only despair for customers as banks have been reducing their lending rates over the last few months as well. It basically means that you will have to shell out extra money than before to buy a home loan or a car loan etc. While customers are justified to panic keeping the rate cuts in mind, there has been an increased pressure on banks to renew all fixed deposits in such a short period of time, especially since they are going through an equally bullish phase due to CASA. They have also portrayed their hopes of growing their business while renewing the deposits of customers. Growth in CASA has thereby, become a matter of concern but banks are brimming with optimism, stating that they aren’t far away from achieving their targets.

As a lot of other banks are opting for a selective policy in allotting high cost deposits, credit off take has relatively slowed down and banks are in any case, full of funds. While banks are not in a position to refuse the renewal of fixed deposits to existing customers, they are being extremely choosy while allotting funds to new customers at this point of time. They have made their focus clear stating that they are not interested in bulk deposits like corporate options, but are instead focusing their funds on retail deposits. One of the major reasons why banks choose to park their funds with CASA can be due to the low cost of funds as compared to the other rates of fixed deposits. Also, the renewal of fixed deposits by existing customers is highly dependent on the prevailing rates of interest, especially since customers do not close their current or savings accounts in a rush. Other players are seeking to capture the concept of float money, which refers to the time lapse between writing a cheque and the deduction of amount from the payer’s account, as it is.

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