SBI raises deposit rate by 25 bps for 3-5-yr bucket

Union Bank reduces SMEs' loan rates up to 300 bps

The State Bank of India (SBI) on Saturday raised interest rate by 25 basis points (bps) for deposits with maturity of three to five years, while the Union Bank of India slashed lending rate for small and medium enterprises (SMEs) by up to 300 bps.

At a time when there are expectations of easing of rates and banks are doing everything to cut the cost of funds, SBI raised the rate by 25 basis points to 9.0 per cent for deposits below Rs 15 lakh. The new rate will be effective from July 1, it said in a statement.

“We have increased the rate only in one-time bracket, which is three-five years. This was done to realign the rate with the market," said A Krishna Kumar, managing director.

Perhaps a large share (over 45 per cent) of low-cost deposits — current and savings — provides SBI room to tweak rates in the term-deposit bucket. To boost credit flow, especially to micro, small and medium enterprises (MSMEs), the Union Bank, another public sector lender, reduced the interest rate on SME loans by up to 300 bps.

A senior Union Bank official said, “After revision, the actual rates for most of MSME clients would be 11-13 per cent, depending on the rating. The revised rates will be applicable for existing and new loans from July 1.”

Other steps to boost credit flow to this sector include focused plans for 350 MSME business intensive branches. It has also identified 30 clusters like rice millers (Durgapur) and textiles (Ludhiana) to cater the credit requirement for exclusive activities.

SBI has already reduced lending rates for farm and SME loans. It also cut rate for export credit by 50 bps recently.

HDFC Bank, a leading private bank, reduced key lending rates by 20 bps — base rate or minimum lending rate to 9.8 per cent and the benchmark prime lending rate to 18.3 per cent. The rate cuts were effective from on Saturday. The year-on-year growth in bank credit till June 15 was 17.8 per cent, according to Reserve Bank of India data.