Mumbai: Banks with limited branch networks and geographic footprint are offering returns on savings accounts that exceed term deposit rates at bigger lenders, illustrating the intensifying competition to mobilise funds in an economy where credit growth continues to pull ahead of deposit accretion in the banking system. Smaller banks are offering 7-7.5% interest on savings, compared with bigger banks’ 7-7.2% on fixed deposits.

“While banks offer higher rates, large banks offer lower rates and in some cases term-rates are lower savings rates of small banks,” said Jefferies in a report. “Among smaller banks, IndusInd Bank has lower rates and wider sources.”

These banks use higher savings rates as a tool to attract customers. “We may see sharper fall in CASA (current account and savings account) ratio of larger banks as gap between term deposit and savings rate is 350 bps, as they are taking a more practical approach to pricing,” said Jefferies.