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SBI bites into deposits again

Mumbai, Nov. 21: State Bank of India (SBI) today announced an across-the-board reduction in deposit rates, the second time in a month it pinched depositors hard.

The cuts, coming three weeks after the October 29 monetary and credit policy, range from 25-50 basis points and have been spread across all maturities. A half-a-percentage point cut in deposit rates was announced to make room for a 25-basis point cut in loan costs.

The reductions that take effect from November 25 come amid a softening of rates and a rapid decline in yields on government securities, conditions that have been created by the torrent of cash swirling around banks.

The yield-to-maturity on the benchmark 10-year government security, for instance, is now around 6.52 per cent against 6.90 per cent last month. “While interest rates represented by gilt yields have come down, a lot of deposits have been flowing into the banking system. Banks are therefore looking at bringing down their cost of borrowings,” said a senior official working for ICICI Bank’s treasury division in Mumbai.

Rates have been cut to 4.25 per cent (4.50 per cent) on deposits of 15-45 days, 5.25 per cent (5.50 per cent) on deposits of 46 days-179 days, 5.50 per cent (5.75 per cent) on deposits of 180 days to less than a year and 6 per cent (6.50 per cent) on deposits kept for a year to two years. Deposits kept for two years to less than three years will fetch 6.25 per cent (6.75 per cent) while those retained for three years will earn 6.50 per cent (7 per cent).

Senior citizens will also take a hit. Their deposits of a year to less than two years will yield 6.5 per cent (7 per cent), deposits of 2 years to less than 3 years will grow at the rate of 6.75 per cent (7.25 per cent); money kept in deposits of three years and above will earn 7 per cent.

SBI chairman A. K. Purwar was not available for comment, and there was no indication if today’s revision was a precursor to a reduction in lending rates — a possibility not ruled out by bankers.

Sources also estimate that other banks like Bank of Baroda (BoB) and Bank of India (BoI) are likely to bring down their deposit rates in the days to come. BoB has already cut interest rates on domestic term deposits on twice since last month. It is estimated that yet another reduction will lead to interest rates coming down by at least 75 basis points in the span of a month.

The declining interest rate regime, triggered by Reserve Bank governor Bimal Jalan’s decision to slash the benchmark bank rate, the cash reserve ratio (CRR) and repo rate in the October 29 monetary policy has led to lower borrowing costs for individuals in housing loans.

However, the current bout of cut in deposit rates by banks will result in scores of depositors now remaining a worried lot. “I don’t know why they are doing this,” said an ex-employee of a public sector entity.

Rate roulette begins

Punjab National Bank has cut the interest rates on its non-resident external (NRE) deposits by 0.75-1 per cent, keeping in line with the Reserve Bank’s policy on soft rate regime. As per the revised rate, effective from Friday, NRE deposits put for six months to one year would get only 5 per cent, instead of 5.75 per cent offered earlier.

Oriental Bank of Commerce has also slashed prime lending rate by 0.50 per cent to 11 per cent, while reducing the housing loan rates to 9.5-10.50 per cent. The fixed rates on housing loans have been brought down to 9.5 per cent for loans up to five years, 10 per cent for loans up to 10 years and 10.50 per cent for loans over 10 years.

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