The State Bank of India (SBI) on Monday cut its deposits rates for fresh funds across segments, citing “falling interest rate scenario and surplus liquidity.”
The term deposit rates will be 20 basis points lower for retail customers, and 50-75 basis points lower for deposits up to 179 days. For bulk deposits, which is Rs 2 crore and above, the rate cut would be as much as 35 basis points. The new rates by India's biggest lender are effective August 1.
SBI's decision follows the RBI cutting lending rates by cumulative 75 basis points this year.
“SBI is the leader anyway. Once SBI does something on rates, others will have to follow,” said Ananth Narayan, Associate Professor, Finance at S.P. Jain Institute of Management and Research.
In a post-results conference, ICICI Bank executive director designate Sandeep Garg said the bank’s marginal cost based lending rate was lowered a fortnight back and the bank will move as per the composition formula of the MCLR. As and when the linked cost of funds, or market rates come down, the MCLR will have to be lowered.
However, the banks can lower their deposit rates at their discretion, based on competition, and that automatically brings down the MCLR for banks. As SBI has now lowered the deposit rates, banks such as ICICI Bank will also have to lower their deposit rates and this then brings down the MCLR for fresh loans.
In a recent meeting with the public sector bank chiefs, RBI governor Shaktikanta Das had prodded banks for cutting rates. The governor is meeting the private sector bank chiefs this week and will also press forward for more rate cuts.
In an interview with Business Standard, Das said banks should start cutting rates.
“Consequent to the rate cuts by the RBI, the accommodative stance, the hugely surplus liquidity in the system right from June 1 onwards, and yields on government securities coming down by over 100 basis points since the first policy rate cut in February, banks should pass on the rate benefit to customers,” governor Das said in the interview.
“The conditions are absolutely conducive for faster transmission of interest rate cuts, I repeat, at least for new loans,” Das said, adding for old loans the transmission may take some more time.
SBI has enough reasons to cut its deposit rates. The banking system had a liquidity surplus of Rs 1.26 trillion as on July 26, compared with nearly Rs 1 trillion deficit a few months back. Particularly for SBI, the certificates of deposits (CD) have come down quite sharply.
“What is the best market indicator for funding rates? SBI’s CD rates have come down by more than 100 basis points since May. The treasury bills have come down by 200 basis points since December. By comparison, the deposit rates have not really come down. Whether this will hit the savings we don’t know but everyone was expecting the banking system to lower lending rates which will follow the deposit rate cuts,” said Narayan.
Following the rate cuts, deposits between 7 days to 45 days will give a return of 5 per cent, from 5.75 per cent earlier. One year to less than two years will give rates of 6.8 per cent, from 7 per cent earlier. The most poplar basket, that of two years to three years will offer interest rate of 6.7 per cent, from 6.75 per cent earlier. For senior citizens, this basket will offer 7.3 per cent, from 7.5 per cent earlier.
For five years and up to 10 years, the deposit rates offered would be 6.5 per cent, from 6.6 per cent earlier. For senior citizens, the rates have been revised down to 7 per cent, from 7.1 per cent earlier.
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