SBI hikes interest rate by 0.25% on deposits of 3-5 yrs

In a surprise move, country's largest bank SBI today increased interest rates on select fixed deposits by 0.25 per cent.

Deposits under Rs 15 lakh for a period of three years but less than five years will fetch an interest rate of 9 per cent, up from 8.75 percent, State Bank of India (SBI) said in a statement issued here.

The revised interest rate will be applicable from July 1, it said.

The move, which is likely to trim SBI's profits, comes as a surprise because the bank had earlier this month cut deposit rates by 0.25 per cent in select maturities. This followed the Reserve Bank's cut in lending rates by 0.5 per cent in April and a cumulative cut in cash reserve requirements to the tune of 1.25 per cent this year.

A hike in interest rate by SBI is surprising also because it followed a cut of 0.20 per cent in base rate by private lender HDFC Bank yesterday.

Bankers are of the opinion that lowering lending rates, which can help boost sagging growth as well as credit pick-up, is possible only if they are able to rein in deposit rates which continue to be elevated due to competition and slowdown in deposit growth.

Meanwhile, SBI's peer Union Bank of India today announced a cut of up to 1 percentage point in its lending to micro, small and medium enterprises. Two other small banks —- Deustche Bank and Lakshmi Vilas Bank-- had also increased deposit rates marginally over the past week.