State Bank of India (SBI) has reduced interest rates on term deposits with maturities of between 180 days and one year, and between 456 days and three years with effect from March 1. The country’s largest bank by assets will now pay 6.5% on deposits with maturities of between 180 days and less than one year, and 6.75% on those maturing between 456 days and less than three years. Earlier, SBI used to pay 6.75% on deposits maturing between 180 days and 210 days, 7% on those maturing between 211 days and less than a year, 6.95% on deposits maturing between 456 days and under two years and 6.85% on those maturing between two years and less than three years.
The corresponding rates for deposits maintained by senior citizens will be 7% and 7.25%. Despite the cut in rates, two- and three-year money with SBI will continue to earn more than at its closest rival, HDFC Bank, which pays 6.25% and 6%, respectively, on deposits of these two maturities.
While banks had seen a steady rise in deposits since the announcement of demonetisation on November 8, some of these deposits have already begun to flow out of the system. According to data released by the Reserve Bank of India, during the fortnight ended February 17, deposits with the banking system fell to their lowest since November 11, the first day banks began to receive deposits of demonetised currency notes of R500 and R1,000 denominations. Aggregate deposits stood at R104.87 lakh crore, up 12.77% year-on-year (y-o-y).
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Outflows began in late December as the central bank gradually eased restrictions on cash withdrawals. Tuesday onwards, the weekly limit for withdrawals from savings accounts will stand at R50,000, as against R24,000 earlier. Limits will not apply March 13 onwards. Most banks expect 40% of the deposits received after demonetisation to remain with them. In recent days, some bankers, including Punjab National Bank managing director (MD) and CEO Usha Ananthasubramanian, Bank of Baroda MD and CEO PS Jayakumar and IDBI Bank executive director RK Bansal, hinted at cuts in the savings deposit rate. At present, most banks pay 4% on savings deposits.