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Mumbai: India's largest bank has begun to shave its high-cost deposits. On Friday, State Bank of India slashed the interest rates on deposits of various maturities, including both short term and medium term in a range of 25 to 50 basis points, effective from November 9. The reductions mean the bank can now begin to lower its lending rates for industry more aggressively.
SS Ranjan, chief financial officer of SBI, told FE, “We don’t want to discourage mobilising of resources. But this step has been taken to deploy our fund in a proper manner.”
SBI's aggregate deposits in September-end was at Rs 7,72,904 crore. Year-on-year, deposits have risen 25% whereas lending has gone up by only 16% to Rs 5,80,237 crore.
Ranjan said he did not expect the deposit rates to be further reduced in this financial year. The bank had reduced the rates by a similar margin three months ago. This is the sixth time the bank has cut deposit rates this financial year.
Rajan was hopeful that the composition of the deposits will be softer, going forward. “As regards current and savings accounts, which are at 42% (of the deposit base) as of now, we anticipate a continuous improvement on that front.’’
As per the new rates effective Monday, the highest interest rate on retail term deposits will be 7% on maturities of 3 years and longer. Rates on seven to 14 days, 91 to 179 days, 180 days to less than one year and one year to two years maturities are unchanged.
Ranjan said that lending rates at 11.75% will not be touched until the bank’s benchmark prime lending rate comes down. The net interest margin for the bank at present rates is estimated at 2.55%, against 3.16% in the corresponding period a year ago.
On Thursday, the second largest public sector bank, Punjab National Bank had also cut interest rates on retail term deposits by 25-50 basis points effective Monday. The bank had acknowledged that the reduction in deposit rates will clip a portion of the current surplus liquidity in the system. “The rates would be reviewed whenever there is a change in the liquidity scenario”, the bank said in a statement.Other banks are also planning to follow suit. BA Prabhakar, executive director of Bank of India, said, “We are also looking at reducing our deposit rates in the range of 25-50 basis points across maturities. It may happen anytime...
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