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SBI takes lead in rate cut

Mumbai, April 30: A day after the Reserve Bank announced a cut in the bank rate, State Bank of India has reduced its prime lending rates and interest on domestic term deposits by 0.25 per cent across all maturities with effect from May 5.

On Tuesday, the Reserve Bank had cut the key bank rate at which it lends funds to banks by a quarter per cent to 6 per cent to the lowest level in over three decades in its monetary policy statement.

The signal was ominous. State Bank was the first to announce a deposit rate cut and a revision in its prime lending rate in a late evening statement. Vijaya Bank, the south-based public sector bank, followed suit by announcing similar cuts in its deposit and lending rates.

“It (the deposit rate and lending rate cuts) will turn into a stampede as other banks are bound to follow,” banking circles said.

The revised State Bank Advance Rate (SBAR), State Bank Medium Term Lending Rate (SBMTLR) and State Bank Short-Term Advance Rate (SBSTAR) would be 10.5 per cent, 11 per cent and 10 per cent respectively.

SBI said the interest on domestic term deposits of seven to 14 days duration would be 4 per cent per annum (4.25 per cent earlier) while for one year to less than two years it would be 5.5 per cent (5.75 per cent).

The rate in case of deposits for two years to less than three years have been revised to 5.75 per cent (6 per cent) and for three years and above, the interest has been pegged at 6 per cent (6.25 per cent).

Senior citizens, a section that has felt the brunt of the recent rate cuts, will continue to get a differential interest rate of 0.5 per cent over and above the rates offered for tenures of one year to less than two years which has been pegged at 6 per cent.

The rate on deposits for two years to less than three years has been pegged at 6.25 per cent and for a period of three years and above, the rates have been fixed at 6.5 per cent.

The rate of interest payable on non-resident external deposits would remain unchanged.

The maturity period of fresh NRE deposits would be for one to three years in line with foreign currency non-resident (bank) deposits.

The revised rates would be applicable to all fresh domestic term, NRE deposits and renewals.

“The soft interest rate environment should continue,” Bimal Jalan said yesterday.

Analysts tracking the banking sector say that the rate cuts could fuel growth in the economy.

SBI had last brought down interest rates offered on longer end domestic term deposits by 25 basis points in January this year. The revision followed the lower yields prevailing on government securities then.

Today’s cut is thus the fourth such reduction by SBI since the monetary and credit policy announced on October 20, 2002. The RBI had then brought down the bank rate, CRR and the repo rate. In November last year, SBI had brought down interest on deposits of a duration of two years to less than three years to 6.25 per cent from 6.75 per cent while the rate of interest on deposits of three years and above were brought down from 7 per cent earlier. However, it is now felt that with the latest reduction, deposit rates are likely to remain stable at least over the next couple of months.

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