SBI jacks up bulk deposit rates by 50-140 bps in second hike in 2 months

Move comes at a time when the banking system is facing liquidity squeeze; no major impact on cost of funds, says bank

The State Bank of India (SBI) on Tuesday raised interest rates on domestic bulk term deposits by 50-140 basis points (bps) across maturities (effective from Tuesday) at a time when liquidity in the system is strained.
 
This is the second hike in bulk deposit rates by the bank in about two months. It had raised rates by one percentage point (100 basis points) in November last year.
 
Besides SBI, other public sector banks such as Punjab National Bank and Bank of Baroda revised bulk deposit rates earlier this month.
 
Rating agency Icra in its statement said banks might hike deposit rates in the near term because incremental credit had outpaced deposits over the last quarter, which had pushed up the credit/deposit ratio.
 
Icra said banks had an option of reducing their excess statutory liquidity ratio (SLR) holdings and deploying funds for incremental credit.
 
Stating the reasons for the current hike rate, P K Gupta, managing director (retail and digital banking), told Business Standard the rates offered by the bank on bulk money were below those offered by competing banks. So it is a realignment of rates. Bulk deposits are Rs 10 million and above.
 
There is a liquidity deficit of Rs 100-150 billion in the banking system. The share of bulk deposits in SBI’s deposits was small and it would not make much difference to the cost of funds, Gupta added.
 
The bank has not tinkered with retail term deposits and has not revised lending rates, either. SBI executives said the asset liability committee continued to review rates regularly.
 
For short-term deposits (46-179 days and 180-210 days), it will offer 6.25 per cent, up from 4.85 per cent. The bank will pay 6.25 per cent on deposits between one year and less than two years, against the old rate of 5.25 per cent. For those of two years to 10 years, the new rate is six per cent, against the old rate of 5.25 per cent.
 
Karthik Srinivasan, group head, financial sector rating, Icra, said higher deposit mobilisation and the trends of increasing rates were seen in the bulk deposits segment.
 
With systemic liquidity remaining in surplus from demonetisation until the first fortnight of December last year, there was no need for banks to mobilise deposits. But the situation in the past one month is different with the gradual reduction in the liquidity surplus and sporadic days of liquidity deficits during the last fortnight of December.
 
In November 2016, SBI had slashed bulk deposit rates by up to 1.9 per cent (190 bps), taking advantage of the surge in deposits with demonetisation.