Kotak Bank cuts savings rate to 3.5% for up to Rs 1 lakh balance

This is the lender’s second cut to the savings rate in as many months and brings its interest rate on savings accounts at par with that of the much larger Punjab National Bank (PNB).

Kotak Mahindra Bank (KMB) on Monday lowered the interest rate on savings account (SA) deposits of up to Rs 1 lakh by 25 basis points (bps) to 3.5%. This is the lender’s second cut to the savings rate in as many months and brings its interest rate on savings accounts at par with that of the much larger Punjab National Bank (PNB).

The lowest savings rate in the banking system being currently offered is that of State Bank of India (SBI) at 2.75%. Deposits with HDFC Bank, ICICI Bank and Bank of Baroda (BoB) yield a little more at 3.25%.

Private banks have been particularly swift in lowering deposit rates. In a report dated May 13, Motilal Oswal Financial Services said, citing RBI data, that with sharp cuts in retail and bulk term deposit rates, the weighted average term deposit cost (WATDR) for private banks moderated by 15 bps between March and April, while for public sector banks (PSBs), it fell by 5 bps over the same period. “KMB has cut its SA rate by a massive 125-150 bps to 3.75-4.5%,” the same report said, without specifying a time period.

The rate cuts follow two back-to-back reductions in the repo rate to the extent of 115 bps between March 27 and May 22. Of late, banks have been quick to reduce deposit rates following cuts in the repo as a portion of their loan books is now linked to the repo. Since all retail and small-enterprise loans made since October 1, 2019, are benchmarked to the repo rate, they immediately earn the benefit of a fall in the repo rate. Consequently, banks must balance their margins by lowering deposit rates.

Another reason for spiralling deposit rates is that banks would like to conserve cash at a time when their interest inflows are under pressure as a result of some accounts being under moratorium.

Bankers have made it clear that rates are bound to go further south. Rajnish Kumar, chairman, SBI, said that the bank would take a call on interest rates in June. “We will discuss these issues at our ALCO (asset liability committee), but obviously, the scenario right now is that interest rates are going down. They go down for borrowers, they go down for depositors,” Kumar had said on Friday.