SBI hikes term deposit rates by 25-50 basis points

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Second increase in deposit rates this fiscal

Our Bureau

Mopping up funds

Deposits for

the shortest period of 7-14 days will now fetch 3.50 per cent

To raise

up to Rs 5,000 crore through sale of perpetual bonds

Mumbai, Aug. 18

State Bank of India has hiked its term deposit rates by 25-50 basis points across maturities, effective Saturday, August 19.

This is the second hike in deposit rates by SBI in the current fiscal. The bank had raised term deposit rates by 25 basis points in May, along with its hike in home loan rates.

Deposits for the shortest period of 7-14 days will now fetch 3.50 per cent as against the existing three per cent. Deposits for longer periods of five years and up to 10 years will fetch 7.25 per cent, up from seven per cent.

The revision in deposit rates assumes significance because SBI's board will be meeting next week to ratify its August 1 hike in its prime lending rate.

After that hike was announced, the Finance Ministry directed public sector banks to obtain approval from their boards before effecting any increase in lending rates.

According to analysts, the announcement of the hike in deposit rates before the board meeting is a move to justify the hike in PLR.

The hike in deposit rate is in line with the increase in interest rates. The bank needs more funds to meet the growing credit needs for which it has to offer higher rates to attract deposits, said an official with SBI.

"If the bank has to maintain its interest spread, its lending rates should match its cost of funds," he said.

Perpetual Bond issue

SBI has decided to raise up to Rs 5,000 crore through sale of perpetual bonds in the current financial year, the bank said in a statement to the stock exchanges.

The minimum maturity period of the bonds will be five years.

The central executive committee has approved the raising of unsecured and rated rupee Innovative Perpetual Debt Instruments/Upper Tier-11/Lower Tier-11 Subordinated Debt Instruments by way of bonds, not exceeding Rs 5,000 crore during the remaining part of Financial Year 2006-2007.

The bonds will be sold in tranches, through structured deals, by private placement or through the book building process, said SBI. Perpetual bonds often have no maturity date or a maturity date which is set so far ahead that the interest appears to be paid indefinitely.

SBI has already raised Rs 2,300 crore in June this year.

Related Stories:
PNB hikes rates on term deposits
RBI raises reverse repo, repo rates
SBI hikes lending, deposit rates

(This article was published in the Business Line print edition dated August 19, 2006)
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