SBI reduces term deposit rates by up to 50 bps

Excess liquidity coupled with tepid credit appetite in the economy has prompted State Bank of India to cut retail term deposit rates of over two years maturity by up to 0.50 percentage points.

With effect from April 29, the interest rate on retail term deposits (of below ₹1 crore) between two years and less than three years is 6.25 per cent (against 6.75 per cent earlier).

The bank has also cut interest rates on two other maturity buckets — three years to less than five years and five years and up to 10 years — to 6.25 per cent each, from 6.50 per cent earlier.

Currently, the highest interest rate that the bank offers is 6.90 per cent on deposits in the one year to 455 days maturity bucket.

The bank currently offers 5.50 per cent interest on deposits in the seven days to 45 days maturity bucket; 6.50 per cent on deposits in the 46 days to less than one year maturity bucket; and 6.25 per cent on deposits in the two years and up to 10 years maturity bucket.

The rate applicable to senior citizens is 0.50 percentage points above the rate payable for all tenors.

The Reserve Bank of India recently observed that the wide spread between small savings rates and bond yields makes small savings more attractive vis-à-vis bank deposits and discourages banks to fully adjust their deposit interest rates on fear of losing deposits, thereby hampering monetary transmission.

Poor credit appetite

Lacklustre credit appetite in the economy is underscored by the fact that outstanding credit of all scheduled commercial banks came down by ₹2,54,608 crore in the fortnight ended April 14.

Further, probably due to other avenues such as small savings schemes, equity markets and mutual fund investments fetching better returns, outstanding bank deposits have shrunk during the reporting fortnight by ₹2,27,666 crore.

Usually, deposit rate cuts are followed by revision in lending rate benchmarks, which happens with a lag.