SBI slashes domestic term deposit rates

The revision in rates is for deposits of up to five years. The new rates would be effective from September 7, the bank said

Amid a dry pipeline of loans and challenges in managing excess cash, State Bank of India on Wednesday reduced interest rates on domestic retail term deposits by 50-100 basis points. The bank said the revision in rates was for deposits of up to five years. The new rates would be effective from Friday.

For deposits of up to Rs 15 lakh, the new rate for a period of 241 days to less than a year was 6.5 per cent (the previous rate was 7.5 per cent), while that for a period of a year to less than two years was 8.5 per cent (earlier nine per cent), according to a statement by the bank.

Chairman Pratip Chaudhuri said the bank had huge surplus funds and very few proposals for loans. “From April 1 to August 31, our deposits increased by Rs 78,000 crore, while credit growth was only about Rs 20,000 crore. Second, the pipeline for loan growth, particularly for large credit, is rather dry. That is why we decided to go slightly slow in deposit mobilisation, because there doesn’t seem to be enough utilisation of the deposits. And, if we hadn’t done that, it could have affected margins.”

However, he said this might not lead to reduction in the base rate. “This is only to slow deposit mobilisation,” he said, adding the impact of Wednesday’s rate cut on the cost of funds would come with a lag, as it would only apply to new deposits.

At the end of June, SBI’s cost of deposits stood at 6.24 per cent, compared with 5.66 per cent a year earlier.

While the yield on advances was 10.86 per cent, compared with 10.43 per cent in the year-ago period, net interest margin was 3.57 per cent, against 3.62 per cent a year earlier.

Chaudhuri said with the revision in deposit rates, the incremental growth in deposits may turn slow. SBI’s retail term deposits rose 25 per cent to Rs 4,36,976 crore in the year ended June, while total deposits rose 16 per cent to Rs 11,02,926 crore.

For short-term deposits of 91-179 days, the new rate is 6.5 per cent (earlier seven per cent). For 180-day deposits, the rate has been revised from seven per cent to 6.5 per cent, and for 181-240 day deposits, the new rate is 6.5 per cent (7.25 per cent earlier).

On reviewing credit growth estimates, Chaudhuri said, “We have not yet revised (lowered) the credit growth target for the current financial year. We are still looking at 18-20 per cent growth. The first quarter is generally slow. The consumer segment is accounting for credit demand. The industrial and commercial segments are very slack.”