SBI hikes retail deposit rates 25-100 bps

(This article has been modified; please see the correction at the end.)

State Bank of India (SBI), the country's largest lender, has raised retail deposit rates 25 to 100 basis points (bps) for deposits maturing within a year. For retail deposits up to Rs 15 lakh, the bank will now offer 8 per cent for deposits maturing between 7 days to less than 1 years, except for 180 days where it will offer 7 per cent.

The bank will also pay a premium of 100 bps for deposits of more than Rs 15 lakh but less than Rs 1 crore. For the 180 days bucket, the premium will be 200 bps for deposit of more than Rs 15 lakh to less than Rs 1 crore.

The short-term rates on certificates of deposit and bulk deposits have shot up in the past month, as banks scrambled for cash to boost balance sheet growth and meet yearly targets. “Since the bulk deposit rates are above 11 per cent, it is better to tap the retail deposit market, where the rates are slightly lower,” said an SBI official. This is the second deposit rate rise by SBI in less than a month, as it launched a scheme on March 1 offering 175-200 bps more over the card rates for deposits maturing within 180 days.

The official said given the tight liquidity in the market, it would be tough to reverse the rates in the immediate future. Besides, if the Reserve Bank of India (RBI) remains active in the foreign exchange market to manage rupee volatility, it would take away rupee resources from the system, putting more pressure on liquidity.

DEPOSIT SWEETENER State Bank’s deposit rate
Tenor	Increase  (in basis points)

7-90 days100 91-179 days75 181-240 days100 241 days to less than 1 yr25 Source: SBI

SBI’s move also comes a day after the government said it would raise the small savings rate by 20-50 bps. As a result, the 10-year National Savings Certificate is to now offer 8.9 per cent, while the Public Provident Fund will fetch 8.8 per cent.

The post office savings rate has been kept unchanged at four per cent, the one most banks offer on savings deposits. As on November 2011, the total amount in small savings schemes was Rs 6.13 lakh crore, marginally lower than the Rs 6.19 lakh crore seen in March 2011.

Bankers may not increase deposit rates once the new financial year starts but will be cautious on reducing these, with the rise in the small savings scheme rates.

“The interest rate on small savings schemes are now comparable with the retail deposit rate of banks. A cut in the retail deposit rate will depend on RBI’s rate action,” said M V Nair, chairman and managing director, Union Bank of India.

Another government-run lender, Bank of Baroda, which had raised short-term retail deposit rates a week before, said it would wait for the central bank’s guidance on April 17, when a review of the monetary policy would be announced. “The increase in our rates was based on the liquidity scenario and requirement of a particular bucket. Our rates are in line with the market rates,” said M D Mallya, chairman and managing director. He said liquidity would also be a key factor in deciding rate action.

The present liquidity tightness is an important reason for banks to aggressively price their deposit products. Despite reduction in their cash reserve ratio limit by 125 bps since January, which injected Rs 80,000 crore in the system, the liquidity deficit in the banking system is three times more than the central bank’s comfort zone. Today, banks borrowed nearly Rs 1.8 lakh crore from RBI’s repo window.

CORRECTION
The deposit rates were mentioned wrong earlier. These have been corrected. The errors are regretted.