SBI cuts deposit rates again

Peak rates slashed by 25 basis points to 8.5 per cent.

State Bank of India (SBI) has cut the peak term deposit rate by 25 basis points (bps) to 8.5 per cent for the second time in just over a month.

It has also slashed rates on short-term deposits of less than a year by an identical margin to improve asset-liability management and reduce the cost of funds. The new rates are effective from December 12.

SBI would now offer 8.5 per cent on 550-day deposits against 8.75 per cent earlier. The peak deposit rate is down from 9.50 per cent about nine months ago.

The interest rate for 15-45 days’ deposits is 4.75 per cent against 5 per cent earlier, for 46-270 days 5.25 per cent against 5.5 per cent earlier and for 271 days to less than a year 6.5 per cent, down from 6.75 per cent.

However, the country’s largest bank commercial bank raised the rate for deposits in the 1 year to 549 days category to 8.25 per cent from 8 per cent.

It has kept the rate for 2 years to less than 3 years at 8.25 per cent. The rate for long-term deposits (3-10 years) has been maintained at 8.5 per cent.

A senior SBI official said, “The bank wants to calibrate (increase) the average tenure of deposits and this is reflected in the rate revision. The asset side duration, say for home and auto loans, is long, but the liabilities ( resources) show a relatively short maturity.”

The cost of deposits has increased to 5.48 per cent from 4.51 per cent due to higher term deposits mobilisation and higher interest rates. The share of low-cost depoists (current account and savings accounts) fell to 39.45 per cent by the end of September 2007 due to focus on raising resources through term deposits by offering attractive rates.

The bank’s deposits grew by 23.31 per cent to Rs 4,84,114 crore at the end of September 2007 from Rs 3,92,615 crore a year ago.

The present conditions in the financial market signal that rates have peaked out. Thus reducing the rate for deposits should help cut the cost of funds. The effects will only be seen after 3-6 months.

The benefit is to improve and protect the net interest margin, which stood at 2.84 per cent after deducting amortisation premium by end-September 2007.

“Eventually, we would like to revise (reduce) lending rates also,” he added.