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To mobilise resources in the run up to the financial year end, State Bank of India has upped term deposit rates on two maturity buckets — 555 days and 1,000 days — by 25 basis points. Simultaneously, to protect its margins, the bank has marked up its lending rate by 25 basis points.
Fresh 555 days and the 1,000 days term deposits in India's biggest lender will fetch 9.25 per cent each. In early December, the bank had sharply hiked term deposit rates by 50-150 basis points.
Lending
On the lending side, the new benchmark prime lending rate (BLPR) and base rate will be 13 per cent (hitherto 12.75 per cent) and 8.25 per cent (8 per cent), respectively. While loans contracted before July 1, 2010 are benchmarked to BPLR, all loans given after this date are with reference to base rate. In late December, the bank had increased BPLR by 25 basis points (to 12.75 per cent) and base rate by 40 basis points (8 per cent).
All rate hikes are effective from February 14, the bank said in a statement.
In the last few weeks, a host of banks including Bank of Baroda, Bank of India, Dena Bank, Union Bank of India, IDBI Bank, Oriental Bank of Commerce, Indian Overseas Bank, and ICICI Bank have increased deposit and lending rates after the RBI increased its key short-term rate last month.
The RBI has assessed that banks have raised their deposit rates in the range of 25-250 basis points during March 2010 - January 2011 across various maturities, indicating strong monetary policy transmission. Further, several banks reviewed and increased their Base Rates by 25-100 bps between July 2010 and January 2011.
Credit expansion
Credit expansion in the recent period has been rather sharp, far outpacing the expansion in deposits. The wide gap between credit growth and deposit growth resulted in a sharp increase in the incremental non-food credit-deposit ratio to 102 per cent by end-December 2010, up from 58 per cent in the corresponding period of previous year, according to the RBI.
The year-on-year non-food credit growth at 24.4 per cent in December 2010 was much above the RBI's indicative projection of 20 per cent.
“Rapid credit growth without a commensurate increase in deposits is not sustainable. …It is important that credit growth moderates to conform broadly to the indicative projections. The Reserve Bank will constantly monitor the credit growth and, if necessary, will engage with banks which show an abnormal incremental credit-deposit ratio,” the central bank said
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