Bank of Baroda Introduces Special Deposit Schemes Amid RBI’s Credit Growth Concerns

In a statement, the Bank of Baroda (BoB) announced its special scheme called “the bob Monsoon Dhamaka Deposit Scheme,” which offers two options: an interest rate of 7.25% per annum for 399 days and 7.15% per annum for 333 days.

This scheme, available for retail deposits below ₹3 crore, started on Monday. Senior citizens will get an additional 0.50% interest rate for both options, and Non-Callable Deposits will earn an extra 0.15%. As of June 30, 2024, BoB’s deposits grew by 8.83% year-over-year to ₹13.06 trillion, which is below the industry growth rate of 10.64% as of June 28, 2024.

Bank of Maharashtra (BoM), based in Pune, also launched a special scheme with 4 options for deposits up to ₹10 crore. According to the bank’s website, the interest rates are 6.90% for 200 days, 7.1% for 400 days, 7.15% for 666 days, and 7.25% for 777 days.

At the CEOs’ meeting on July 3, RBI Governor Shaktikanta Das highlighted the ongoing gap between credit and deposit growth. He emphasised the need for banks to reconsider their business models due to this wide gap. Recent RBI data showed that deposit growth decreased to 10.6% year-over-year, while loan growth reached 13.9% as of June 28, 2024.

CareEdge Ratings mentioned that banks are expected to make extra efforts to strengthen their liability franchise to ensure deposit growth supports credit demand. Many banks are now using infrastructure bonds to raise funds. For example, SBI has raised ₹20,000 crore through infrastructure bonds this financial year, and BoM plans to raise up to ₹10,000 crore using the same method.

Impact on Marginal Cost of Funds-Based Lending Rates (MCLR)

Due to the rising cost of funds, banks are passing these costs onto borrowers to protect their margins. Starting Monday, SBI has increased its marginal cost of funds-based lending rate (MCLR) across various terms by 5-10 basis points. Most corporate loans, including those to SMEs, use MCLR as a benchmark. SBI raised its 1-month MCLR by 5 basis points to 8.35%, the one-year MCLR by 10 basis points to 8.85%, and the 3-year MCLR by 5 basis points to 9.0%.

HDFC Bank, the largest private sector lender, also increased its MCLR by up to 10 basis points for some terms starting July 8, 2024. The bank’s MCLR now ranges from 9.05% to 9.40%, with the one-year, two-year, and three-year MCLR set at 9.40%.

About Bank of Baroda Ltd

Bank of Baroda (BOB) is an Indian state-owned bank offering international banking and financial services. The bank provides a wide range of services to individual customers, including savings accounts, current accounts, home loans, vehicle loans, education loans, demat accounts, mutual fund investments, government deposit schemes, life insurance, general insurance, and health insurance. It also offers various financial and credit services to MSMEs, corporates, agriculture, and other business entities.

On July 16, 2024, Bank of Baroda Ltd’s share price opened at ₹259.80, touching the day’s high of ₹260.90 as of 10:01 AM on the NSE.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.