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Mumbai, Jan. 7: State Bank of India, the country’s largest commercial bank, today raised interest rates on its domestic term deposits by 25 to 50 basis points.
The move could spark a deposit rate hike in the banking industry but it’s still not clear whether this will lead to an immediate rise in lending rates as well.
A few banks like Bank of Baroda have raised rates on medium-term deposits (tenures of one to three years) in the past week but SBI is the first to raise deposit rates across the board.
For short-term deposits with maturity period between 15 and 45 days, SBI has raised interest rates by 50 basis points to 4.5 per cent. For deposits with maturity periods between 46 and 179 days, interest rates have been increased by 25 basis points to 4.75 per cent, while deposits with maturity of 180 days to less than a year will earn 5.5 per cent interest, which is 50 basis points more. The new rates come into effect from Monday.
Term deposit rates have been revised upwards by 50 basis points. While the 1-3 year deposits would now earn an interest of 6 per cent, deposits with maturity of 3-5 years would get 6.25 per cent.
Interest rates on deposits with a maturity period of 5 years and above have been revised upward by 25 basis point to 6.5 per cent.
Accordingly senior citizens would be given 6.50 per cent for 1-3 years deposit, 6.75 per cent for 3-5 years and 7 per cent for deposits with a maturity of 5 years and above.
Several banks ' especially public sector banks ' have been raising deposit rates in recent times. Since November last year, banks like Dena Bank, Union Bank of India, Canara Bank and Bank of Baroda (BoB) have been raising deposit rates in the range of 25 to 50 basis points.
However, the revisions were restricted only to selected maturity brackets, more particularly in the longer term.
According to banking experts, revisions have not been carried out because interest rates are looking up. The principal reason, they say, relates to credit offtake, which has been rising at a robust pace.
However, the growth in deposit rates have not kept pace with that of advances. “Banks have been increasing deposit rates to attract funds,” a banker said.
Sources in the banking industry are ruling out the possibility of a rise in interest rates on loans, particularly retail advances. However, bankers are refusing to say how long they will be able to hold out before they raise lending rates as well.
The RBI, it may be recalled, had raised the reverse repo rate by 25 basis points to 5.25 per cent in October even as it left the bank rate unchanged at 6 per cent. The third quarter review of the monetary policy comes up on January 24.
Banking mavens say any further revision in the monetary policy may have implications on lending rates. Incidentally, after the RBI’s monetary policy in October, interest rates on sub-PLR loans to corporate houses rose by 25 to 75 basis points. However, loans at the retail end were not affected.