SBI trims deposit rates by up to 50 bps
By Vaibhav Aggarwal
Jul 28, 2009
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Banking major, State Bank of India (SBI), has revised interest rates on term deposits downwards by 25-50 basis points

The revised rates will came into effect from July 27 onwards. Following this, the bank will announce its quarterly monetary policy review.

The reduced rates will be applicable on all fresh deposits and renewals. With this rate revision the highest rate offered by the bank for its deposit products will be 7.75 percent on deposits with a tenure of 8 to 10 years.

OP Bhatt, Chairman, SBI, said, "interest rates are headed southwards because of surplus liquidity in the system and lower credit offtake."

It is the fifth time that the bank has reduced term deposit rates since April, aggregating the total reduction to about 175 basis points.

The benchmark prime lending rate, SBAR (State Bank Advance Rate) during the same period has been lowered by 50 basis points to 11.75 percent.

With this, the rate on term deposits of with tenure of one year to less than two years will be 6.5 percent as against the earlier 7 percent.

S Ranjan, Chief Financial Officer, SBI, explained the effect of this rate cut - "Today's cut along with renewals of old term deposits at lower rates were expected to bring down the cost of deposits by 6-7 bps."

Ample liquidity and low credit take off has forced the bank to reduce the deposit rates. The deposit base of the banks in the first four months of the fiscal has increased by Rs 194,597 crore whereas the loan take off has grown only by Rs 23,198 crore.

Banks have parked around 1 lakh crore funds in RBI reverse-repo window.

It is also expected that the regulator might reduce the reverse-repo rate by 25 basis points to 3.5 percent in an attempt to signal further rate cuts by the banks and push up retail and corporate lending.

Note- One basis point is equals one-hundredth of a percentage point.

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