SBI cuts bulk deposit rate by 0.25% in short-term bucket

Step to protect margins in falling rate regime

With over Rs 40,000 crore of excess money in its kitty, State Bank of India has cut the interest rate on short term bulk deposits by 25 basis points to 7.25 per cent.

“It has been decided to revise downwards by 25 bps the interest rate on bulk deposits (rupees one crore and above) for tenors (of) seven days to less than one year,” the country’s largest lender informed the Bombay Stock Exchange. The interest rate for bulk deposits for the above tenors will be 7.25 per cent per annum with effect from June 07, 2013.

A senior SBI executive said, “the bulk money is essentially from institutional side, including corporates. We have more than adequate amounts; so, do not see a need to attract ‘hot’ money.”

SBI is sitting on excess cash, while the banking system continues to face liquidity deficit. The average daily borrowing by banks at Reserve Bank of India’s liquidity adjustment facility (LAF) is over Rs 90,000 crore.

There is need to align the rate since RBI has cut the repo rate in May. Keeping with the falling interest rates the yield on investments has also dipped. So, we have to reduce the rate on bulk money to protect Net Interest Margin (NIM), a SBI official said.

Its net interest income declined 4.42 per cent to Rs 11,078 crore in January-March 2013 from Rs 11,591 crore a year ago.

The bank’s NIM also eased to 3.66 per cent at the end of March 2013 from 4.17 per cent in March 2012.