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At a time when banks are aggressively raising interest rates on term deposits due to widening gap between credit and deposit growth, the interest rate differential on the maximum rate by Bank of Maharashtra and other public sector lenders is about 75 basis points (bps).
As a result, the bank is losing deposits to other banks, the Pune-based public sector lender's employee union has said in a letter to the management.
The bank is offering a peak rate of 6.30% on term deposits of up to Rs 10 crore (Rs 100 million) while the peak interest rate for deposits of up to Rs 2 crore (Rs 20 million) is 6.15%.
Senior citizens are offered an additional 50 bps on all maturity slabs.
In comparison, other PSBs, such as State Bank of India, Bank of Baroda, Punjab National Bank, Canara Bank, and Bank of India, are offering peak interest rates of 6.75%, 7.05%, 7.25%, 7% and 7.05% respectively.
The union has urged the bank to raise interest on fixed deposits offered to senior citizens to 7.10% for 1-3-year tenure and above 6.50% for others.
In a letter to the managing director and chief executive officer of Bank of Maharashtra, the union said, 'It is observed that some of our branches are already losing good balances in their savings deposits as well as fixed deposits, which are maturing, to the other banks.'
'... we request the bank to increase the maximum fixed deposit rate offered to senior citizens to at least 7.10 per cent, preferably for a specific period in the 1-3-year bracket,' the union said.
While Bank of Maharashtra reported 22% year-on-year (YoY) growth in advances to Rs 1.57 trillion in Q3FY23, its deposits grew 12% YoY to Rs 2.08 trillion.
On a sequential basis, advances of the lender grew 6.02% while deposits saw 6.42% growth. The current and savings account ratio (CASA) ratio, however, has gone down to 52.50% as of December 2022.
Since the Reserve Bank of India is on a monetary tightening path, resulting in rates on assets and liabilities rising, any interest differential in excess of 50 bps on deposits among major PSBs is likely to result in an exodus of deposits favouring banks, which offer high-interest rates, the union has said.
The union has observed that 7.10% has become the new benchmark for interest rates on fixed deposits across the banking industry.
To derive a psychological advantage in order to retain existing depositors as well as bring in new customers, the maximum rate offered by Bank of Maharashtra should, at least, be above the new benchmark of 7%, the union said in its letter.