SBI deposit rates cut 25-50 bps

The bank extends 8% home loan scheme till March.

The country’s biggest lender, State Bank of India (SBI), today slashed interest rates on domestic term deposits by 25-50 basis points (bps) across maturities to reduce cost of funds.

It also extended the tenure of its popular home loan scheme till March 31, 2010.

The fresh cut in deposit rates is being seen as a trade-off for extending the tenure of the home loan scheme.

A senior SBI official said, “Though RBI (Reserve Bank of India) signaled the end of its easy monetary policy, it did not increase policy rates. We do not expect the rates to rise at least till March 2010. In fact, they could dip slightly. The system is flush with resources, which provides us room to slash deposit rates and also extend the tenure of the home loan scheme, which is giving business.”

The new deposit rates will be effective from November 9. This is the eighth cut in deposit rates by SBI in the current financial year.

The steepest drop in rate (of 185 basis points since April) has been for deposits with tenures of one year to less than two years. The new rate for this segment is 6.25 per cent.

The lender’s cost of funds has come down to 6.06 per cent from 6.30 per cent at the end of March 2009. The bank has brought down the share of high-cost bulk deposits in total deposits to 3.6 per cent in September 2009 from 16.82 per cent a year ago.

It shed high-cost bulk deposits to the extent of Rs 49,700 crore in the April-September period.

A slow growth in credit demand and a 200 bps cut in the prime lending rate has hit earnings from interest income. These have put pressure on margins, reflected in a sharp drop in net interest margin from 3.16 per cent (September 2008) to 2.43 per cent.

The State Bank of India official said the home loan segment had brought the bank good business. Sanctions under the segment have crossed Rs 15,000 crore. Outstanding home loans at the end of September were Rs 62,338 crore, up from Rs 50,584 crore a year ago.

For loans up to Rs 5 lakh (of 10-year tenure), SBI charges a fixed rate of 8 per cent for five years. Loans above Rs 5 lakh and up to Rs 50 lakh carry a fixed interest rate of 8 per cent for the first year and 8.5 per cent for second and third years.