ICICI Bank joins peers in cutting savings account interest rates

ICICI Bank, India’s second-largest private lender, has reduced its savings account interest rates by 25 basis points, following similar actions by HDFC Bank and Axis Bank in recent days.

The new interest rates for ICICI Bank’s savings accounts are 2.75% per annum for balances below Rs 50 lakh and 3.25% per annum for balances of Rs 50 lakh and above.

Analysts from Anand Rathi noted that this rate cut is a more structural move aimed at reducing the cost of savings accounts. "Our calculations suggest that a 25 bps reduction in savings rates could improve the Net Interest Margin (NIM) by 5-8 basis points for the banks we cover," they said.

Earlier this week, HDFC Bank also reduced its savings interest rate by 25 bps, bringing it to 2.75% for balances under Rs 50 lakh. This marks HDFC’s first savings rate cut in five years. The State Bank of India ( SBI) has already been offering 2.7% for balances under Rs 10 crore since October 2022.

Industry experts believe other private banks will likely follow this trend, preparing depositors for a potential broader rate-cut cycle in the medium term.

"Savings deposit accounts are more transactional in nature, and recently, depositors have been shifting to term deposits where interest rates are significantly higher—close to 7%," said Suresh Ganapathy, Head of Financial Services Research at Macquarie Capital. "A further 25 bps cut may not necessarily push depositors towards term deposits."

The interest rate reduction is seen as a strategy to address the headwinds of NIM contraction, especially for private banks with significant exposure to loans linked to external benchmarks like the repo rate, during an interest rate easing cycle.

In addition to the savings account rate cuts, several banks have reduced their term deposit rates across various maturity periods. This should ease concerns about significant NIM declines in the first half of this fiscal year.

HDFC Bank, for example, has ended its special deposit scheme that offered 7.35% on 35-month retail deposits and 7.40% on 55-month deposits. These tenures are now offering 7% interest. Yes Bank has also lowered its fixed deposit rates by 0.25 percentage points on select tenures.

Bajaj Finance has reduced its interest rates by 0.25 percentage points for longer-tenure fixed deposits. Starting April 10, it will offer 8.15% on 42-month fixed deposits.

Bandhan Bank has also adjusted its savings account rates. It is now offering interest rates between 3% and 5% for balances between Rs 1 lakh and Rs 10 lakh, compared to a flat 6% rate previously.

This reduction is particularly focused on special deposits, which were introduced temporarily (until March 31) to attract resources amid intense competition to gather liabilities.