SBI cuts deposit rates on slow credit, liquidity glut

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SBI cuts deposit rates on slow credit, liquidity glut

State Bank of India, SBI has snipped interest rates by 25-50 basis points on deposits up to five years duration.

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State Bank of India has snipped interest rates by 25-50 basis points on deposits up to five years duration.

This is the second time in as many months that India's biggest bank has cut term deposit rates.

Last month, the bank had reduced term deposit rates by 25 basis points across all maturities.

The latest round of interest rate-cuts on term deposits is effective from November 9. SBI, however, has left interest rates on long-term deposits in two maturity buckets - 5 years to less than 8 years (7.25%) and 8 years and up to 10 years (7.50%) - unchanged. Even as it cut term deposit rates, the bank announced extension of its 8% home loans campaign up to March 31, 2010 following good response to the scheme.

The bank has grown its home loans portfolio by 15% from Rs 54,063 crore as of March-end 2009 to Rs 62,338 crore as of September-end 2009.

According to analysts, SBI may have pared term deposit rates to protect its net interest margin in the face of sluggish credit pick-up and liquidity glut arising from heavy inflow of retail term deposits, which on an average increased by Rs 8,075 crore a month in the first six months of the fiscal.

NIM lower

The bank's net interest margin in the first half of FY2010 was lower at 2.43% against 3.16% in the corresponding half last year.

In Q2FY2010, advances growth has been sharply lower at Rs 30,444 crore (Rs 51,020 crore in FY2009).

"Deposit rates are a function of liquidity. We have been gradually bringing down the term deposit rates. Our NIM will improve by 2-3 basis points following the marginal cut in term deposit rates," said Mr S. S. Ranjan, Deputy Managing Director and Chief Financial Officer, SBI.

Punjab National Bank , on Thursday, announced that it will clip interest rates on term deposits by 25 to 50 basis points in select maturity buckets. With the latest reduction, the highest interest rate offered by PNB will be 7 % on term deposit of three years and above.

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