Kotak Mahindra Bank lowers interest rates on savings deposits for second time in April; new rates effective from today

Mumbai: Kotak Mahindra Bank, the fourth-largest private sector lender has slashed the interest rates on savings deposits for the second time this month.

The bank had lowered the savings rates from 1 April.

The new lower rates are effective Monday and comes even after reporting a healthy jump in its deposit base in the March quarter earlier this month.

The largest lender SBI that controls almost a quarter of the banking system had also slashed the pricing on its savings account deposits earlier this month to just 2.75 per cent flat.

In an email to its savings bank account holders on Sunday, Puneet Kapoor, the bank's president for products, alternate channels and customer experience delivery said, “effective 20 April, the interest rates on daily balances in savings account stands revised to 4.5 percent per annum for daily balances above Rs 1 lakh and 3.75 percent for daily balances up to Rs 1 lakh.”

This is still a full 100 bps more than the SBI rate, which offers only a flat rate to everyone and 25-50 bps over the industry average, while its higher rate is still much above the both.

Representational image. Reuters

When contacted, the bank's spokesman told PTI that the move reflects falling interest rates scenario and will help better manage the cost of funds and pass on the benefit to borrowers.

Kotak was one of a handful banks-–Yes Bank, Indusind Bank, RBI and DBS--to offer higher pricing on savings deposits that had peaked at 7 percent for the past many years. These banks were offering higher rates to bring down their cost of funds by increasing the low-cost CASA (current and savings) accounts.

While banks like SBI and HDFC Bank have very high CASA base of over 55 percent, the same is very low for these banks in the mid-30 to early 40s type.

A higher CASA helps banks bring down their cost of funds as there is a current account holder gets no interest on the balance in the account, the savings accounts offer 3 - 3.5 percent on average at best.

Earlier this month, Kotak Bank had said it saw an 11.7 percent spike in customer deposits and a 1.3 percent jump in advances in the March quarter over the December 2019 quarter.

In the March quarter, its current account deposits grew 16.9 percent sequentially, while the savings bank deposits jumped 14 percent.

This comes amidst its peers including RBL Bank and IndusInd Bank, which also offer 4-5 percent interest on savings deposits have seen a dip in deposits during the quarter as the economy has been on southward ho for many quarters now, which got a deadly shock later last month due to the COVID-19 pandemic.

Effective April, Kotak had reduced the rate offered for deposits of over Rs 1 lakh in the savings account to 5 percent from 6 percent earlier, while those under Rs 1 lakh will continue to earn 4 percent, saying the lower pricing was to support the economy and to extend support to government effort in fighting the pandemic. The bank also pointed to the overall falling interest rates.

The share of the low cost current and savings accounts deposits in the overall deposit base rose to 56.2 percent as on 31 March, as against 53.7 percent in December and 52.5 percent in the year-ago period.

The Kotak counter traded 0.7 percent up at Rs 1,194.50 on the BSE at 1315 hrs against the benchmark Sensex negotiating a choppy trade.