Competition to garner resources has prompted State Bank of India to increase deposit rates. Simultaneously, to offset the impact of this action, the bank has nudged up its benchmark lending rate.
India’s largest bank has increased retail term deposit rates (below Rs 1 crore) by 25-100 basis points. One basis point equals one-hundredth of a percentage point.
SBI has also nudged up its base rate by 10 basis points to 9.80 per cent . The last time the bank had revised its base rate was in February , when it lowered it by 5 basis points to 9.70 per cent from 9.75 per cent.
Base rate is the minimum rate below which banks are not permitted to lend. All loans are priced either at or at a mark-up to this rate.
Cost of liquidity
The benchmark prime lending rate, which was in vogue before the base rate system of lending was ushered in by the RBI in July 2010, has been increased by 10 basis points to 14.55 per cent.
SBI has upped the interest rate on deposits in two maturity buckets — seven to 179 days and 211 days to less than 1 year — by 100 basis points each to 7.50 per cent. Deposits in the 180-210 days maturity bracket will now fetch 6.80 per cent interest against 6.50 per cent earlier.
All deposits in the 1-year and up to 10-year maturity bucket will earn 9 per cent interest against 8.75 per cent earlier.
A senior SBI official said “The cost of liquidity has gone up. Competition is offering higher deposit rates. So, we have increased our deposit rates to ensure that there is no flight of deposits.” Since the deposit rates have been hiked, the bank had to nudge the benchmark lending rate up to protect its margins, the official added. Banks are facing pressure on the liquidity front due to the RBI prescription that requires banks to maintain a higher minimum cash reserve ratio (the slice of deposits, currently at 4 per cent, that banks have to park with the RBI) balances.
The RBI has steeply hiked the minimum CRR balances that banks have to maintain to 99 per cent (against 70 per cent earlier) of the average daily required reserves for a reporting fortnight, on all days of the fortnight.
As at June-end, SBI had a domestic loan portfolio of Rs 908,987 crore (Rs 909,492 crore as at March-end 2013), and retail term deposits of Rs 493,977 crore (Rs 473,235 crore). The bank’s net interest margin was lower at 3.16 per cent during the same period , against 3.34 per cent as at March-end 2013.