SBI cuts shorter term bulk deposit rates, increases longer term rates

On the first day of a three-day meeting of the monetary policy committee (MPC), the country’s largest lender, State Bank of India (SBI), moved to hike its long-term deposit rates, albeit marginally.

SBI also slashed its shorter term bulk deposit rates (Rs 10 million to Rs 100 million) by 25-45 basis points (bps), while increasing the longer term bulk deposit rates by 5 bps to 60 bps.

One bps is a one-hundredth of a percentage point. The Reserve Bank of India (RBI) announces its monetary policy decision on Wednesday, August 1.

Since the bank adjusted its rates in both directions, a clear rate signal is not evident other than the fact that the bank has plenty of short-term liquidity, while it is suffering from some liquidity shortage in the longer tenure.

A deposit rate hike is usually followed by a lending rate adjustment, but in this case that may not be evident immediately. Indeed, SBI kept its marginal cost of funds-based lending rate intact at 8.25 per cent in July.

The realignment of rates on term deposits has been done “keeping in mind the liquidity conditions and the maturity of deposits in some buckets,” a senior SBI executive said, adding the liquidity profile of the bank remains comfortable. The new rates are effective Monday.

The liquidity in the banking system has tightened significantly in the past few days and SBI’s rate adjustment could be an indicator of that. System liquidity would be an important input point for the six-member MPC.

The net liquidity deficit increased from Rs 257.66 billion on July 21 to a four-month high of Rs 714.11 billion as of July 25, CARE Ratings noted. The liquidity deficit moderated in the second half of the week and was Rs 387.99 billion, the rating agency added.

This is the third consecutive week that the banking system liquidity is in deficit mode.

In order to infuse more durable liquidity in the system, since May, the RBI has purchased Rs 300 billion worth of bonds from the secondary market. The expectation is that the central bank would do many such buybacks in the coming days to aid liquidity. But till the system liquidity normalises, banks will have to do such finer adjustments with their deposit profiles.  

For retail deposits up to Rs 10 million, SBI’s revised rate for 1 year to less than 2 years is 6.7 per cent, against 6.65 per cent earlier. For 2 years to less than 3 years, it raised rate by 10 bps to 6.75 per cent. It did not change the rate for short-term maturity buckets (up to 1 year).

Tweaking the bulk deposits rates, SBI said the new rate for 45-179 days’ bucket would be down by 45 bps at 6.25 per cent. In 1 year to less than 2 years, the revised rate would be down by 30 bps at 6.70 per cent. The bank jacked up the rate for 5 years to less than 10 years.

SBI’s term deposits stood at Rs 14.12 trillion at the end of March 2018. Its cost of deposits declined to 5.30 per cent in March 2018, from 5.84 per cent in March 2017.