State Bank of India (SBI), the country's largest lender, has decided to cut its peak interest rate offered on the 550-day deposit by 25 basis points to 8.75 per cent from November 9. | |
| The move comes in the wake of the bank's net interest margins coming under pressure at the start of the third quarter of 2007-08. |
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| The bank has also withdrawn its super-saver term deposit scheme for a minimum deposit of Rs 10,000, carrying a 9 per cent interest for 4-5 years and 8.5 per cent for deposits over 5 years. |
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The bank's net interest margin (NIM) fell by 18 basis points to 2.84 per cent at the end of September from 3.02 per cent a year earlier as cost of deposits rose 97 basis points to 5.48 per cent from 4.51 per cent.
AFTER THE SLASH
Revised rates w.e.f of 07-11-2007 | | Duration | Interest
rate
(% p.a.) | | 15-45 days | 5.00 | | 46-270 days | 5.50 | | 271 days to < 1 year | 6.75 | | 1 year to 549 days | 8.00 | | 550 days | 8.75 | | 551 days to < 2 years | 8.00 | | 2 years to < 3 years | 8.25 | | 3 years and up to 10 years | 8.50 |
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| The bank's cost of deposits is expected to go up by a further 5-15 basis points in the third quarter. The bank, however, is targeting an NIM of 3 per cent at the end of the year. |
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| A 50 basis point hike in the cash reserve ratio (CRR) to 7.5 per cent by the RBI in its mid-term review of the monetary policy acted as a trigger for the bank to reduce its deposit rate. |
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| "With the CRR hike, Rs 2,500 crore of funds would get locked in. Also, in the second quarter, there has been pressure on the bank's margins, leading to a review of deposit rates," said a senior official of SBI. |
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| O P Bhatt, chairman, SBI, had earlier, while, stating there was a case for a cut in deposit rates, had said the bank would await cues from the monetary policy. "Some cut in deposit rates have already started. We are waiting for the RBI policy to give us a cue," he said. |
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| Most banks are facing a margin squeeze with the rise in interest expenditure outpacing the increase in interest income at the start of the third quarter of the financial year. Public sector lenders Union Bank of India and Punjab National Bank had last week cut their deposit rates across various maturities. |
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| "The current deposit rates are unsustainable. We might take a look at reviewing our deposit rates," said A K Khandelwal, chairman and managing director, Bank of Baroda. |
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| SBI has also incorporated its earlier platinum scheme for 550-day deposits within its normal-term deposit scheme, following the RBI's directive to banks to ensure that rates offered on special deposit schemes were in tune with interest rates on normal deposits of the same maturity. |
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| The bank, which was earlier simultaneously offering 9 per cent on its platinum deposit scheme for 550-day deposits and 8 per cent on deposits of 1-2 year maturity, will now offer 8 per cent interest on 1 year to 549-day deposits, 8.75 per cent on 550-day deposits and 8 per cent on deposits over 550-day deposits to two years. |
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| The bank has mobilised Rs 12,000 crore of deposits under its special deposit schemes since the last quarter of 2006-07. |
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