The Telegraph
Since 1st March, 1999
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SBI hints at another cut in deposit rates

Mumbai, Jan. 6: State Bank of India (SBI) chairman A. K. Purwar has hinted at another cut in deposit rates, the third time it would slice through customers’ pockets after the Reserve Bank of India’s (RBI) October credit policy.

“The bank may cut interest rates it offers on deposits,” Purwar said at National Institute of Bank Management’s annual day function in Pune today. Bank of Baroda has already reduced its deposit and lending rates a few days back.

Arguing for a re-alignment between falling government bond yields and higher deposit rates, he explained that the bank was “examining” the proposal to pay customers less for the money stashed away in its vaults.

On an average, the bank pays 4.25 per cent to 6.5 per cent on deposits kept for 15 days to more than three years.

SBI was the first off the block after RBI’s monetary policy in October 2002 set the ball rolling for cheaper credit. It drove down the deposit rates by 50 basis points.

Analysts say interest rates have fallen mainly because the RBI lowered the bank rate — a benchmark figure seen as a sign of where rates are headed — and the torrent of cash swirling around from cuts in cash reserve ratio.

As money poured in from policy changes and depositors starved of alternative investment options, banks and institutions piled into government securities (gilts), sending their yields to new lows over the past few months. The benchmark 10-year government security, for instance, is fetching a percentage point less now than it did three months back.

“While rates represented by gilt yields have come down, lot of deposits have been flowing into the banking system. Banks are, therefore, looking at bringing down their cost of borrowings,” a senior banker said.

Meanwhile, Punjab National Bank has revised interest rates on non-resident external (NRE) term deposits to 4.5 per cent for 6-12 months. The rate for 1-2 years has been revised to 5 per cent while that for 2-3 years is pegged at 5.25 per cent, a bank release said.

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