The Hindu Business Line : SBI hikes rates on long-term deposits

Mumbai, May 26 State Bank of India on Monday announced an increase of 25 to 50 basis points in interest rate on deposits of tenures of two years and above.

The revision which will come into effect from June 1, has been done mainly to raise funds for the long-term loan portfolio, said a senior SBI official.

“We have a fair size of long-term loan portfolio in housing and infrastructure projects. We need funds for these projects. This marginal hike is to enable us to raise funds for such projects,” said Mr Ashok Mukand, Deputy Managing Director and Chief Financial Officer, SBI.

The rates on deposits of 15 days to less than two years are unchanged.

SBI last hiked its deposit rates in January by 50-100 basis points.

Other leading public sector banks said they are not looking at hike in deposit rates at the moment, given the comfortable liquidity. SBI’s move need not necessarily indicate a regime of higher deposit rates, said a senior official of a public sector bank.

Banking analysts were also surprised by the SBI move, as margins are under pressure for most public sector banks.

Mr Kashyap Jhaveri, banking analyst with M K Shares and Stock Broking, said SBI has raised rates by 25-50 basis points in the two to 10 year time bracket. “This accounts for a big size of the bank’s deposit base and its margins will come under further pressure.”

For the last fiscal, SBI’s cost of deposit was higher at 5.59 per cent as compared to 4.79 per cent for the previous year. Its Net Interest Margin was marginally lower at 3.07 per cent (3.09 per cent).

“This hike, perhaps, is an attempt by SBI to increase its deposit base”, said Ms Chandana Jha, banking analyst, with PINC Research. “The bank may be trying to keep sufficient cushion for lendingWe have to see how efficiently the bank is able to lend the resources they raise,” she said.