BoI Hikes Rates for Big Deposits, DCB Offers Rewards on UPI Spends

Analysis of Public Sector and Small Private Banks’ Initiatives to Attract Customers

Source: The analysis is based on information from an Economic Times (ET) Bureau article published on January 3, 2024.

Analysis for a Layman

Public sector bank Bank of India and small private sector DCB Bank have introduced new initiatives to attract customers by offering special fixed deposit schemes and digital payment rewards, respectively.

Bank of India:

  • The bank has introduced a new fixed deposit scheme with an interest rate of 7.5%, targeting large depositors placing Rs 2-50 crore for a duration of 175 days. This rate is higher than existing fixed deposit rates.
  • The aim is to attract bulk deposits from institutional investors and corporations to fund credit growth. The bank seeks to tap into large deposits to support its lending activities.

BoI Hikes Rates for Big Deposits, DCB Offers Rewards on UPI Spends

DCB Bank:

  • DCB Bank has launched a regular savings account that offers cashbacks on digital UPI payments. Customers maintaining quarterly average balances of Rs 25,000 are eligible for these rewards.
  • The bank aims to incentivize the usage of UPI for merchant payments above Rs 500, fostering increased adoption of mobile-based transactions.

Banks are employing both interest rate incentives and digital payment perks to attract stable retail savings and current account deposits. These funds are crucial for banks to extend fresh loans and credit to borrowers. Additionally, deposit mobilization helps banks meet regulatory requirements related to maintaining cash reserves and liquidity coverage ratios.

Impact on Retail Investors

For regular retail investors, the immediate impact of these initiatives is limited. DCB Bank’s digital payment rewards primarily target existing account holders, and Bank of India’s bulk deposit scheme doesn’t directly influence mainstream retail fixed deposits.

However, the broader trend of increasing bank deposit rates could attract investors away from other assets like stocks and gold if these rising rates persist. Higher deposit rates could positively impact bank margins over the long run, helping offset the impact of increased funding costs due to RBI hikes.

Investors should monitor deposit rate trends among leading state banks like SBI and PNB, as well as top private banks like ICICI and HDFC, to gauge the competitive landscape. PSU bank stocks may particularly benefit from widening deposit rates due to the higher sensitivity of their margins.

Impact on Industries


  • Higher bulk deposit rates may trigger a competitive rush among PSU and private banks to mobilize large deposits from institutions and corporations through tailored schemes. However, compliance and oversight costs may also increase with niche products.
  • Digital payment transaction offers could stimulate fresh innovation in UPI apps by startups seeking tie-ups with banks on shopfront-led acquisition models. Banks also get unique product proposition leverage through nimble fintech partnerships.


  • For debt investors, elevated fixed deposit rates raise the investment floor for portfolio returns needed to merit moving away from safe bank fixed income options to market-linked debt funds, company FDs, etc. This impacts choices.

So, competitive dynamics in banking and interface with fintech stand catalyzed, while debt investment evaluators face enhanced benchmarks for performance requirements relatively.

Long Term Benefits & Negatives


  1. Deposit Momentum: Niche products sustain funding momentum amid a tight liquidity environment, rather than large across-the-board hikes that are less sustainable later.
  2. Cost Efficiencies: Higher low-cost CASA and retail term deposits compared to institutional credit ease margin pressures from external benchmark-linked loan repricing.
  3. Fintech Synergies: Partnerships on payments innovation create an ecosystem for spreading formal banking access using technology.


  1. Misselling Risks: Complexity in niche deposit products risks misselling to less-informed retail and rural customers if proper procedures are not established.
  2. Revenue Pressures: If higher deposit costs are not passed on appropriately to borrowers, it can squeeze bank margins longer term.
  3. Execution Continuity: Progress needs sustained strategic commitment rather than short-term tactical scheming. Discontinuities harm credibility.

Thus, prudent liquidity management, customer-centricity, and transparency matter for capturing upside potential while balancing long-term efficiency with stability.

Short Term Benefits & Negatives


  1. Deposit Momentum: Arrests potential outflows by addressing investor needs amid market uncertainty. Achieves a short-term objective.
  2. Low-Cost Funds Upside: If priced and targeted well, bulk deposits and payment-linked accounts can positively impact bank margins.
  3. Mindshare Gain: Favorable public response and media coverage build positive brand perception. Helps advertising.


  1. Execution Glitches: Launching new products hastily risks teething troubles frustrating early adopters, delaying word-of-mouth traction.
  2. Misselling Pitfalls: A rush to maximize publicity undermines due diligence in training personnel for avoiding misselling controversies later that hurt more.
  3. Fintech Partnerships Challenges: Collaboration models with agile startups have execution complexities in reconciling bank processes with innovations. Need balance.

So, while the announcements garner attention, converting proposals into sustained customer experiences requires avoiding potential short-term fallout through diligent change management.

Companies Impacted by BoI’s High-Interest Deposits & DCB’s UPI Rewards:

Indian Companies:

  • Gainers:
    • High-Net-Worth Individuals (HNWIs): BoI’s 7.5% interest rate on big deposits caters specifically to HNWI segment. Private and wealth management firms like ICICI Wealth, HDFC Wealth, and Kotak Mahindra Wealth could potentially attract more HNWIs seeking high returns.
    • Digital Payments Companies (Paytm, PhonePe, Google Pay): DCB’s cashback initiative might encourage customers to use UPI more through these platforms, potentially increasing transaction volumes and boosting their market share.
    • Small Private Banks (DCB Bank, RBL Bank, Bandhan Bank): These banks often rely on innovative schemes to attract deposits and customer engagement. DCB’s cashback program could provide them with a competitive edge and potentially increase deposit mobilization.
  • Losers:
    • State-run Banks (SBI, PNB, BoI excluding high-value deposits): BoI’s limited-time high-interest offer might entice some depositors from other state-run banks, impacting their deposit base in the short term.
    • Traditional Savings Accounts: DCB’s cashback rewards on UPI could entice some customers to switch from traditional savings accounts to the DCB Happy Savings account, affecting deposit mobilization for banks relying primarily on such accounts.

Global Companies:

  • Limited Impact:
    • Global Payment Technology Companies (Visa, Mastercard): While UPI growth might benefit them indirectly through increased transaction volume, the domestic nature of the platform limits their direct involvement.
    • Foreign Banks in India: These banks face stricter regulations and licensing restrictions compared to domestic banks, potentially limiting their ability to compete directly with BoI’s high-interest offer or DCB’s cashback program.

Market Sentiment:

  • Mixed: The news carries both positive and negative implications for different entities.
    • Positive: HNWI firms, digital payment companies, and specific private banks could see increased investor interest due to potential business opportunities.
    • Negative: State-run banks and traditional savings accounts might face temporary deposit withdrawals or reduced customer acquisition, potentially impacting their stock prices.
    • Neutral: Global companies and broader market sentiment might remain largely unaffected, focusing on broader economic factors and global market trends.

Note: This analysis is based on limited information and may not capture all factors. Conduct further research and consider your individual circumstances before making any investment decisions.

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