NEWS & ADVICE : FIXED DEPOSITS
SBI increases deposit rates by 25 to 50 basis points
By Neelima Shankar
Jan 4, 2008
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Mumbai: State Bank of India (SBI) has increased deposit rates for various terms by 25 to 50 basis points. It was on December 12 last year when SBI announced a cut in its deposit rates after the US Fed Reserve lowered its key policy rate. This juggling of deposit rates by the premier bank can make things difficult for other banks.

A 181 days deposit from SBI will now earn an interest of 7.5% against 6.5% offered earlier. One to two year deposits will earn an interest rate of 8.75% against 8.25% earlier. The deposit of 550 days duration, which offered an interest rate of 8.5% has been discontinued and the bank will now offer two to ten year deposits at 8.5% against 8.25%, which was offered for deposits of three to ten years duration.

At present the system has a comfortable liquidity and the banks have deposited Rs. 40,630 crore with RBI under the reverse repo route. Another reason cited for this increase is to meet the redemption demand for the last quarter. It is usual for the banks to hike rates for deposits, which will be redeemed before March and this was done by a number of banks last year. Finance Ministry has also added the core deposits in a bank as another parameter to judge a bank's performance and bankers feel that this step would  have also been one of the reasons that prompted SBI for this deposit rate hike.

However, senior SBI official denied any pressure on the bank due to redemptions and said that the whole exercise was geared at discontinuing the 550 days deposit and drawing more customers toward the deposit of one to two years duration.

Though, the major private sector banks are treading cautiously, some bankers feel that there is no need to follow the SBI's path on deposit rates. CMD of Punjab National Bank (PNB) KC Chakrabarty said,"We are offering market-related rates. We have no plans to make any changes," and similar views were expressed by the Allahabad Bank CMD, A C Mahajan who said, "Given the level of liquidity in the system, we do not find any immediate need to increase interest rates on deposits.”


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