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SBI cuts rates on short-term deposits

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Mumbai, Dec. 12 In a bid to cut cost of funds, State Bank of India, the country’s largest bank, on Wednesday reduced interest rates on domestic term deposits of less than one year by 0.25 percentage point.

However, the bank has maintained the rates on deposits of more than two years. In some maturity, the bank also raised rates to ensure asset-liability match.

The revised rates are effective from December 17, said a press release from the bank.

With this revision, the term deposit rates range from 4.75 per cent at the shorter end (15 to 45 days) and 8.5 per cent at the longer end (3 to 10 years).

In comparison, ICICI Bank, the second largest bank in the country, offers 4 per cent on deposits of 30 - 90 day tenure and Bank of Baroda, another PSU bank, 4.5 per cent on deposits of 15-45 day tenure.

Analysts see the SBI’s move as a strategy to cut cost of funds ahead of its proposed rights issue. At the same time, the bank has made the long-tem deposits more attractive.

SBI plans to raise Rs 16,000 crore through a rights issue.

The bank increased the rates on deposits of one year to 549 days and on deposits of 551 days to less than two years by 0.25 percentage point to 8.25 per cent (8 per cent).

A senior SBI official said that the bank is targeting short-term deposits to bring down the cost of deposits.

In the second quarter of the current fiscal, the cost of deposits for SBI had increased to 5.48 per cent from 4.51 per cent due to higher term deposits mobilisation and higher interest rates.

“With the US Federal Reserve cutting interest rates, the general expectation is that interest rates would come down,” the official said.

In the first half of this fiscal, SBI’s deposits increased by 23 per cent to touch Rs 4,84,114 crore.

“Our position as far as deposit growth is comfortable. The rate cut would not have any impact because the maximum we offer is still 8.25 per cent,” the official said.

At a recent press conference, Mr Sitaramam Komaragiri, Deputy Managing Director and Group Executive, said that deposit growth is likely to remain around 25 per cent in the second half as well.

Related Stories:
SBI may cut rates on deposits
SBI offers higher rates on deposits of Rs 15 lakh-1 cr

(This article was published in the Business Line print edition dated December 13, 2007)
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