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Fixed deposits in India: Time to get in?

February 25th, 2007 | Tag(s): None | Popularity: 26% [?] |

With the steady increase in interest rates in India, banks are now offering relatively attractive interest rates for fixed deposits (FDs). There are several caveats - for example, an FD for 390 days at ICICI Bank fetches 9% interest p.a. but if you choose one day less or one day more, the interest rate drops to 6.75%. The same applies for a 590-day FD which gets 9.5% but a 589 or 591-day FD gets 6.75%. My guess is that ICICI wants to make sure that you hold the FD beyond March 31st of 2008, since the February-March peroid is usually the worst in terms of liquidity in the banking system.

In fact, this Economic Times article talks about the possibility that the State Bank of India (SBI) might actually cut interest rates in April, once they have met their financial obligations for the 2006-2007 financial year, ending on March 31st, 2007.

With the second round of RBI’s cash reserve ratio (CRR) hike coming into effect on March 3rd, I would think that the best time to invest in an FD is going to be March 5 - 25, as banks scramble to meet these statutory obligations.

3 comments:

  1. Nikhil [February 26th, 2007]:

    Does this mean that Bonds of Government and Private Institutions will also reach highest yields during March 5-25 period. Is it good to invest in MIPs of Mutual Funds? Since NRO Fixed deposit is subject to TDS. Please guide me.

  2. Kaushik [February 26th, 2007]:

    Bonds: I doubt that these would follow FD interest rates offered by banks, since there’s no pressure on the government to meet CRR/SLR obligations. In fact, I recently saw an article in Mint (livemint.com) that pointed out this discrepancy - government bonds yielding much lower than bank FDs.

    As for MIPs - I should point out that I’m not a qualified/registered investment adviser, just a blogger sharing my thoughts on the markets :-)

  3. powermyloan [March 10th, 2007]:

    Fixed deposits are back in vogue after series of interest rate hikes. They have become good investment options for retail investors. In fact in my recent interviews with a foreign bank rep brought this to my knowledge that to maintain CRR obligations top management of the bank has actually given strict guidelines to the branches and regional offices to focus solely on fixed deposits. www.powermyloan.com

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