The principal way by which banks earn income is through loans. Loans are typically for fixed terms at fixed rates. Loans are secured with real property or assets. Prepayment penalties are charged if the loan is cleared ahead of tenure. Part of a loan process includes evaluation of the borrowers using credit card history checks. So where do banks set their interest rates from?
Bank Deposits
Another source of funds for banks are Deposits. It is the money that account holders entrust to the bank for safekeeping.
These same funds are used by borrowers in future transactions.
Interest Rates
The rate at which money is lent to the borrower is usually higher than the rate of interest at which the bank has borrowed it. Banks charge a high interest rate because they have employees to pay, offices to maintain and a business to run. Banks basically make money by lending at higher rates than the cost of money.
Banks collect interest at on loans and interest payments from the debt securities they own and pay interest on deposits and short term borrowings.
Interest rates at various banks in India:
To get a general idea as to how interest rates vary from bank to bank, we can look at the table below:
| Name of Bank | *Interest Rates |
| HDFC Bank | 11.49% – 20.00% |
| State Bank of India | 13.00% – 17.65% |
| ICICI Bank | 11.49% – 22.00% |
| Axis Bank | 15.50% – 24.00% |
| Citibank | 11.75% – 15.75% |
| Bajaj Finserv | 14.25% – 16.75% |
| Standard Chartered Bank | 11.99% – 15.50% |
| Fullerton India | 17.25% – 35.00% |
| Capital First | 16.00% – 24.00% |
| Andhra Bank | 13.95% – 16.00% |
| Bank of Maharashtra | 14.20% – 15.15% |
| Canara Bank | 13.65% – 13.65% |
| Dena Bank | 13.00 % – 14.00% |
| Union Bank of India | 11.65% – 14.40% |
| Vijaya Bank | 12.70% – 13.70% |
| Tata Capital | 13.50% – 17.50% |
| Allahabad Bank | 13.55% – 13.55% |
| Federal Bank | 13.44% – 15.24% |
| IndusInd Bank | 11.49% – 22.00% |
| Yes Bank | 12.50% – 16.00% |
| Bank of Baroda | 14.15% – 14.15% |
| Corporation Bank | 13.50% – 14.50% |
| IDBI Bank | 13.20% – 13.75% |
| Indian Bank | 14.50% – 17.00% |
| Indian Overseas Bank | 12.70% – 15.25% |
| Punjab National Bank | 12.45% – 15.45% |
| Karur Vyasa Bank | 13.90% – 16.40% |
| Syndicate Bank | 14.30% – 14.30% |
| Kotak Bank | 11.50% – 24.00% |
*The rates are as of 28th September 2016
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