State Bank of India hikes term deposit rates by 15-100 basis points

The revised rates on domestic term deposits, including bulk deposits, are effective from today

With rising competition for mobilising resources among banks, State Bank of India (SBI) has raised interest rates by 15-100 basis points (bps) on various maturities on both domestic retail deposits, and bulk deposits, effective Tuesday.

SBI is offering a peak deposit rate of 6.75 per cent for retail deposits on two buckets — one year to less than two years and two years to less than three years.

For two years to less than a three-year bucket, deposit rates were increased by 50 bps. For one year to less than two-year category, the rate increase was 65 bps to 6.75 per cent.

SBI said it would pay 4.25 per cent for 07-45 days bulk deposits, up from 3.5 per cent. In bulk deposits, one year to less than two years will now attract a rate of 6.5 per cent, up from 6 per cent. Two years to less than three years will have a 5.75 per cent rate as against the old 5.25 per cent. The rates for three years to less than five years are also 5.75 per cent (5.25 per cent old).

PSB executives said the liquidity was tight and if SBI was facing a challenge, medium and small lenders were in a much more tough situation. This will trigger upward rate revision by banks in the current and next quarter (Q4FY23).

Bankers said the widening gap between credit growth and deposits deposit growth has pushed banks to increase interest rates on deposits. Banks have also stepped up efforts across branch networks and digital platforms for mobilising resources.  

According to Reserve Bank of India (RBI) data, banking systems deposits stood at Rs 172.9 trillion on November 18, registering 9.6 per cent growth year-on-year (YoY). The outstanding credit stood at Rs 129.47 trillion, registering 17.2 per cent YoY growth.

Meanwhile, in absolute terms, bank deposits have increased by Rs 15.2 trillion over the past 12 months. The credit has expanded by Rs 18.98 trillion in the same period.

Last week, the RBI increased the policy repo rate by 35 bps to 225 bps. In the post-policy interaction with researchers, RBI Governor Shaktikanta Das alluded to the fact that deposits were growing at a higher base while credit growth in the previous year was low.

“During the whole period of the pandemic or even last year, there was hardly any credit growth which was about 5 per cent, 6 per cent or so, low base, but deposit growth had picked up in the first two years of the pandemic. Whatever is now happening based on the deposit side, the growth has to be seen in the context of the base effect” Das said.

Rating agency CareEdge said the liquidity has generally been trending down, with the RBI seeking to reduce excess liquidity from the system to manage inflation. The banking system liquidity surplus has narrowed to around Rs 1.5 trillion from Rs 6.3 trillion at the start of FY23.

India Ratings said in a note said banks would be keen to raise bulk deposits in the bucket of one to three years by offering attractive rates, implying a material differential between rates for a wholesale depositor versus retail depositor. The current nature of credit growth has largely been driven by short-term working capital financing and shift from capital market to banking system. Given the credit demand owing to capex is still lukewarm, banks will be more focused on short-term deposits, it said.