SBI announce cut in deposit rates by 25-50 bps

India’s largest lender, State Bank of India (SBI) has announced cut in interest rates on term deposits by 25-50 basis points (bps). The revised rates will come into effect from Monday. The cut has been done across various maturities.

Since April SBI has reduced its interest rates five times bringing the cumulative reduction to about 175 bps. The revised rates will be applicable to fresh deposits and the term deposits that come up for renewal. The maximum rate of 7.75 per cent is being offered on deposits for 8 to 10 years.

As per revised rates on one year to less than two years it will be 6.5% instead of 7% offered earlier. The Chief financial officer S Ranjan told the new cut and renewals of old term deposits at lower will together bring down the cost of deposits by 6-7 bps.

The rate for deposits of one year to less than two years will be 6.5 per cent as against 7 per cent offered earlier. 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, said Chief Financial Officer S Ranjan.

In 2008-09 SBI’s cost of deposit was 6.30 per cent, which is higher from 5.59 per cent for 2007-08. In the last two-three years bank has been under pressure because of high-cost deposits it had constricted in order to fund credit growth therefore to protect its net interest margin (NIM) it had opted for aggressive reduction in its deposit rate.

In October 2008 bank had offered 10.5 per cent annual interest rate on 1,000-day deposits to retail depositors with which bank earned Rs 1,000 crore daily. On the other hand its NIM reduced to 2.93 per cent in 2008-09 from 3.07 per cent in 2007-08.

There has been reduction of up to 300 bps in deposit rates since December last year; in comparison to this the benchmark prime lending rate has been reduced by 150 bps. The bankers say although they find little room for an aggressive deposit rate cut but in the second quarter it will remain subdued. Dhanalakshmi Bank CFO Bipin Kabra pointed out as now the banks do not have any liquidity problem therefore banks will go for cut in their costs.

However the Andhra Bank Chairman and Managing Director K R Kamath say at this point banks cannot find any room for further cut in deposits rates.