With large public and private sector banks cutting term deposit rates in quick succession, banks are likely to cut loan rates early next year.
The country’s largest lender State Bank of India (SBI) on Friday cut its deposit rates for maturities of over one year by 0.25 per cent.
SBI is the third bank after private sector lenders ICICI Bank, the country’s second-largest bank, and HDFC Bank to reduce deposit rates during the week. In fact, this is the fourth time SBI has trimmed deposit rates in the last five months.
SBI chairman Arundhati Bhattacharya had recently said that loan rates would start trending downwards through a compression of spreads but had added that deposit rates also needed to come down.
“We led the deposit rate cut a while back and a few bigger banks cut their rates about three weeks back and so, some of the bigger banks are now beginning to cut on their deposit rates. As and when that gets entrenched and the deposit rates trend downwards you can also see some kind of result in cuts in the base rates,” Bhattacharya had said.
In a regulatory filing on Friday, SBI said it has lowered deposit rates by 25 basis points (bps) to 8.5 per cent for deposits maturing between one and three years. The bank has also revised its term deposit rates for maturities of three to five years, and five years and above to 8.5 per cent and 8.25 per cent, respectively. These rates would also be applicable, SBI said, for NRE deposits of one year and above.
Private sector lender Axis Bank has also cut rates by up to 75 bps on term deposits below one year and by 15-25 bps in select maturities above one year, effective December 8.
A few days ago ICICI Bank and HDFC Bank trimmed their fixed deposit rates below Rs 1 crore by 25 bps and 25-50 bps, respectively, in select maturities.
Deposit rates have come off beginning July when SBI cut its term deposit rates by 25-50 bps in certain categories. Flush with funds and finding a mismatch in credit demand, banks have been cutting deposit rates for the last five months. Analysts said that with lower cost of funds, a result of lower interest paid on deposits, banks are likely to pass on the benefit to customers with a cut in base rates.
HDFC Bank to cut loan rate by March: Puri
Having cut its deposit offering by up to 0.50 per cent, the country’s second-largest private sector lender HDFC Bank will be cutting its lending rate by March, its managing director said on Friday. “Now I’ve reduced my fixed deposit rates, and you will see by March or so base rate will come down,” said Aditya Puri.