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SBI takes lead, pares retail deposit rates

SBI on Tuesday trimmed the interest rate on term deposits.

Mumbai |
September 17, 2014 5:15:15 am
SBI on Tuesday trimmed the interest rate on term deposits with a maturity of between one and three years by 25 basis points to 8.75%. SBI on Tuesday trimmed the interest rate on term deposits with a maturity of between one and three years by 25 basis points to 8.75%.

Ample liquidity and a lack of lending opportunities have prompted State Bank of India (SBI) to trim deposit rates for its retail customers with more banks expected to follow suit. SBI on Tuesday trimmed the interest rate on term deposits with a maturity of between one and three years by 25 basis points to 8.75%, a move that might encourage others to do the same given loan growth has tapered off to four-year lows of 11%. With consumer inflation just a shade below 8% and down from its peaks of 12%, banks, it would appear, are less apprehensive of deposits not coming in.

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Speaking to a business news channel, Keki Mistry, vice-chairman and CEO of Housing Development Finance Corporation, said more banks were likely to cut deposit rates in the next couple of months. “I think the expectation would be fair that over the next month or two we could see a few more rate cuts in the system on deposits,” Mistry said.

KR Kamath, chairman and managing director, Punjab National Bank, was quoted by the moneycontrol website as saying his bank had also been looking at a rate cut because it had enough liquidity to meet reasonable credit demand. SL Bansal, CMD, Oriental Bank of Commerce, said, “We are comfortable at 9% and might only revise after September 30.”

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Indeed, should banks be able to lower their cost of funds, they will most certainly be willing to drop loan rates; already, the competition in the corporate loan segment has seen AA-rated companies borrow at close to the base rate while retail borrowers are seeing lower home loan rates in select categories.

SBI chairman Arundhati Bhattacharya, who had confirmed to FE recently that loan rates for companies had been lowered by most banks, said on Tuesday the lender had excess liquidity with not enough demand to match. “The reason for the revision is that we have a lot of liquidity, we have not seen that kind of credit demand and, therefore, this is basically adjusting our asset liability management,” the SBI chairman explained.

The bank, however, raised rates for maturities of 180 to 210 days by 25 basis points to 7.25%. Banks now offer retail customers anywhere between 8.75% and 9.05% for deposits below Rs 1 crore. However, given the abundance of liquidity — investments to maintain the statutory liquidity ratio are at 27% against the mandated 22% — and little demand for credit, they may opt to trim deposit rates. Banks have been infusing an average of Rs 9,000-10,000 crore in the reverse repo over the last two weeks.

SBI had last revised its term deposit rates in July when it cut bulk term deposit rates by 25 bps and retail term deposit rates by 50 bps for certain tenures. The bank had cut bulk term deposit rates (Rs 1 crore and above) by 25 bps for tenures of 7-60 days to 6.25% and 61 days to less than one year to 6.75%. For retail term deposits (less than Rs 1 crore) the downward revision in rates affected deposits that mature in 7-179 days, which has been revised to 7% from 7.5%.

Rajiv Anand, head of retail banking, Axis Bank observed that as of now the bank has no plans to cut rates. “Our asset-liability committee is due to meet by month end and we will take a call at that time,” Anand said.

fe Bureau | The Financial Express

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