Real returns from FDs remain negative for 6 straight months

The return on a one-year retail term deposit with State Bank of India ( SBI ) adjusted for tax and inflation stood at -1.92% at the end of March. Even as consumer inflation eased, there was little relief for Indian savers who continued to draw negative real returns from fixed deposits (FDs) for the sixth straight month in March as banks lowered deposit rates. Nonetheless, the blow was softened to an extent by falling consumer prices, with returns improving from a six-month low in January 2020. The return on a one-year retail term deposit with State Bank of India (SBI) adjusted for tax and inflation stood at -1.92% at the end of March. A headline consumer inflation rate of 5.91% resulted in a negative return for the depositor. Certificates of deposit (CDs), too, have turned cheaper, with the one-month CD rate sliding to 4.7% in April from around 5.5% in October 2019. Deposits grew at their slowest pace since June 2018 — 7.93% y-o-y — during the fortnight ended March 27. VS Khichi, executive director, Bank of Baroda , said, “It is still too early to gauge the impact of rate cuts on deposits. Chalasani Venkat Nageswar, deputy managing director for international banking and chief financial officer, SBI, said that the future trajectory of deposit rates will hinge on how other asset classes perform. Since financial savings are distributed among various asset classes, the growth of deposits depend on market dynamics,” he said.