SBI cuts retail deposit rates on better liquidity
State Bank of India (SBI), the country’s largest lender, has reduced short-term retail term deposit rates by 25 basis points (bps), as liquidity in the system has improved.
The deposit rate revision has taken place for tenures below 24 days. The new rates, applicable only on deposits below Rs 15 lakh, take effect tomorrow. Now, deposits maturing between seven and 180 days will fetch seven per cent and 180-240 days will fetch 7.25 per cent. Deposit rates for tenures above 240 days and for deposits above Rs 15 lakh and up to Rs 1 crore have not been changed.
“The liquidity situation in the shorter end has improved in recent times, reflected in the banks’ borrowing figures. The (daily) liquidity deficit in the system has come down to Rs 80,000 crore from above Rs 1.2 lakh crore. This is the main reason for the rate cut," said a senior SBI official.
Below Rs 15 lakh
|7 days to 90 days||7.25||7.00|
|91 days to 179 days||7.25||7.00|
|181 days to 240 days||7.50||7.25|
|Rates in % *from June 8, 2012 Source: SBI|
This is the second round of reduction in deposit rates by the lender since the policy rate cut announced by the Reserve Bank of India (RBI) on April 17. The central bank is scheduled to review the monetary and credit policy on June 18.
RBI’s bond purchase through open market operations has helped liquidity conditions to improve, the official said. “Credit growth is generally slack in the first quarter of the financial year. So, there is no rush for funds," he added.
However, this cut in deposits will not significantly affect the cost of funds. SBI is yet to revise its benchmark lending rate or the base rate, which depends on a bank’s cost of funds.
Following a 50 bps policy rate reduction by RBI, most lenders have revised their base rate downward. SBI has one of the lowest base rates in the sector and had reduced rates on retail, education and small and medium enterprise loans.
According to bankers, since most retail loans are parked for one year period and above, for any significant change in the cost of funds which will in turn give room for cutting base rate, those rates needs to be reduced.
“We are waiting for the policy signal from the central bank. If RBI cuts rate further, banks may start reducing long-term deposit rates which will lead to reduction in base rate," said chairman and managing director of a public sector bank.
The bank has been trying to reduce the share of high-cost deposits. At present, high-cost deposits constitute 11 per cent and retail term deposits 79 per cent of the term deposit portfolio, of Rs 4.33 lakh crore as on March 31. Interest expenditure on deposits for SBI registered a 29 per cent growth to Rs 55,644 crore in 2011-12.