Flush with liquidity, SBI cuts short-term deposit rates again

Written by fe Bureau | Mumbai | Updated: Oct 30 2014, 09:32am hrs
The countrys largest lender, State Bank of India (SBI), on Wednesday revised fixed deposit rates for select maturities. This is the third time the lender has trimmed deposit rates in the last three months.

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In a regulatory filing, the bank said it has lowered interest rates by 100 bps to 5% for deposits maturing between seven and 45 days, with effect from November 1. SBI had last revised its term deposit rates in September when it cut retail term deposit rates by 25 bps for certain tenures.

Prior to that, it had cut its bulk deposit rates in July by 25 bps and retail term deposit rates by 50 bps for certain tenures.

SBI chairman Arundhati Bhattacharya had earlier said that the bank was flush with liquidity, but was not seeing enough demand for credit. The reason for the revision is that we have a lot of liquidity, we have not seen that kind of credit demand and, therefore, this is basically adjusting our asset-liability management (ALM), she had said.

According to Ananda Bhoumik, senior director, India Ratings and Research, this gradual change in deposit rates will allow the bank to improve its net interest income (NII) over time. Moreover, SBI also has enough liquidity that does not match growth in credit, Bhoumik added. The bank had cut bulk term deposit rates (R1 crore and above) by 25 bps for tenures of 7-60 days to 6.25% and 61 days to less than one year to 6.75%. For retail term deposits (less than R1 crore), the downward revision in rates affected deposits that mature between seven and 179 days, which were revised to 7% from 7.5%.

Other public sector banks to revise their deposit rates were Punjab National Bank and Oriental Bank of Commerce. While PNB revised rates of bulk deposits, OBC trimmed rates in the retail segment.

That apart, private sector lender IndusInd Bank recently cut interest rate on savings account to 4.5% per annum from 5.5% on daily balance up to R1 lakh from September 1. However, it kept interest on accounts that maintain a daily balance of more than

R1 lakh at 6%, the bank said on its website.

For the fortnight ended October 3, deposits in the banking sector grew 13% to R82.9 lakh crore and non-food

credit stood at R61.7 lakh crore, up 11.15% y-o-y. On Wednesday, the SBI scrip closed at R2,642.7 on the BSE, down 0.52% from the previous close.