State-run Indian Bank raised rates on two special fixed deposits by 15 basis points from Oct. 23, lifting its 555-day Ind Grow scheme to 6.80% from 6.65% and its 777-day Ind Prosper scheme to 6.75% from 6.60%, according to Kotak Neo and Outlook Money. It is one of the first visible moves by a bank to pass on the Reserve Bank of India's October rate increase to savers.

For investors across Asia who hold rupee deposits, including nonresident Indians in Hong Kong, Singapore and the Gulf, the slow response matters. Policy rates have turned higher, but most large banks are still paying the deposit rates they set in the summer, so the extra return so far sits mainly with smaller lenders and finance companies.

RBI's first hike since 2023

The RBI's Monetary Policy Committee voted unanimously on Oct. 7 to raise the repo rate by 25 basis points to 5.50%, the central bank's policy statement showed. It was the RBI's first increase since February 2023, according to Upstox, and the repo rate had been held at 5.25% for the previous four reviews.

The committee also changed its stance to "calibrated tightening" from neutral. Two members, Nagesh Kumar and Ram Singh, wanted the stance left at neutral even though they backed the hike. The standing deposit facility rate moved to 5.25% and the marginal standing facility rate to 5.75%.

Inflation drove the decision. Consumer prices rose 4.8% in August from 4.5% in July, above the RBI's 4% medium-term target, and the central bank now projects inflation of 5.2% for the fiscal year to March 2027, with a 6% reading in the October to December quarter. The stance change signals that rate cuts are off the table in the near term, SCC Online reported of the committee led by Governor Sanjay Malhotra. Its next meeting runs Dec. 2 to Dec. 4.

Tighter money is already showing up elsewhere in the system. India's interbank cash surplus has shrunk as the RBI has defended the rupee, and loan growth has outpaced deposit growth, which normally pushes banks to compete harder for savings.

Indian Bank, SBI and HDFC Bank deposit rates

That competition has been slow to reach the biggest names. A week after the RBI decision, State Bank of India's chairman said banks might not raise deposit rates over the next two to three months, though individual lenders could still adjust, according to an Upstox survey of rates published Oct. 14.

The same survey showed HDFC Bank's card for deposits below 3 crore rupees unchanged since Aug. 19, with a top general rate of 6.50% for tenures between three years and about four years and seven months, and up to 7.10% for senior citizens. ICICI Bank's schedule, effective Oct. 13, also peaked at 6.50% for general customers and 7.10% for older savers.

Punjab National Bank's rates, effective June 1, still topped out at 6.60% for its 444-day special deposit, while Bank of Baroda's 555-day bob Golden Goal scheme, priced from June 12, paid 6.75% to general depositors and 7.25% to senior citizens. SBI's rates for deposits below 3 crore rupees ranged from 3.05% to 6.40%, according to Goodreturns.

Against that backdrop, Indian Bank's new 6.80% for 555 days puts it slightly above Bank of Baroda's comparable special scheme for general customers. Senior citizens now get 7.30% on the 555-day deposit and super senior citizens 7.55%, Outlook Money reported, in line with the extra 0.50 and 0.75 percentage point Kotak Neo said the bank usually pays older savers.

Finance companies and small banks move first

Nonbank lenders reacted faster. Bajaj Finance raised deposit rates by 15 to 40 basis points across tenures of 14 to 60 months on Oct. 7, the day of the policy decision, Goodreturns reported. Its general rate for 31 to 60 months rose to 7.75% from 7.40%, and its top senior citizen rate went to 8.15% from 7.75%.

Small finance banks were already paying more before the hike. Suryoday Small Finance Bank offered senior citizens 8.50% on five-year deposits and Jana Small Finance Bank 8.30% on three years, according to a separate Upstox comparison.

Saurabh Jain, chief executive of savings platform Stable Money, told Goodreturns that the hike "was broadly expected" and that markets had partly priced it in. He said another increase is expected in December, and suggested savers with a fixed horizon lock in rates in stages rather than try to time the peak.

Wholesale funding costs point the same way. One market participant quoted by Upstox expects one-year certificate of deposit rates of 7.50% to 7.75%, well above what large banks pay retail savers on similar tenures. That gap tends to close as banks need more deposits to fund lending.

Existing fixed deposits keep their contracted rate until maturity, so the higher rates apply only to new money and renewals. The next marker for depositors is the RBI's Dec. 4 decision: a second increase would put more pressure on SBI, HDFC Bank and the other large lenders to reprice their cards.

This article is general information, not financial advice.