The Hindu Business Line : SBM hikes deposit rates

Bangalore, Aug. 20 Reflecting the tightening liquidity situation, State Bank of Mysore (SBM) hiked its deposit rates today and has begun offering 10.5 per cent interest per annum to depositors for maturities up to 300 days.

SBM is offering senior citizens even higher rates of 11 per cent for a similar maturity profile. SBM is one of the first public sector banks to offer double digit deposit rates for sub-one year deposits. The rush for deposits comes even as short-term certificates of deposits have been pushed beyond 11 per cent.

Public sector banks, however, are containing CD exposure in view of the cost and risk implications. CDs are normally issued for bulk deposits and have an inherent liquidity risk built into them, since subscribers have the option of premature redemption, after incurring the penalty charges or foregoing interest during the period. Retail deposits entail few such risks.

The costs for such deposits are expected to be close to about 11.5 per cent. This was in view of the 9 per cent cash reserve ratio, for which banks receive no interest. CRR is the cash balances that the banks maintain with the RBI. There are no interest payments on CRR balances. In addition, banks also have to maintain a 25 per cent statutory liquidity ratio. This implied that 25 per cent of the banks net demand and time liabilities have to be mandatorily parked in Government securities.

The rush for deposits started in anticipation of further tightening of liquidity. The tightening was evident from Wednesday’s liquidity adjustment facility auction, where there were 28 bids for repurchases, amounting to Rs 38,910 crore.

Bankers said that with SBM breaching the double-digit mark, more banks were likely to tweak their deposit rates in a bid to raise short-term liquidity.

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