State Bank of India has decided to raise the domestic term deposit rates by 25-75 basis points across various maturities to match the competition as well as avoid dependence on the high-cost bulk deposits. The new rates will be effective from December 11, 2006.
The interest rate hike is substantial (0.75 per cent) on medium-term and long-term deposits, indicating the need to attract stable funds.
The hike for short-term deposits (less than one year) is a marginal 0.25 basis points. The last revision in term deposit rates (of 25-50 basis points) was made in August 2006.
SBI wants to stay away from the bulk deposits, which are costly source of funds (over 9 per cent rate for one year deposit). The bank will like to garner resources through term deposits, which have retail base, by giving attractive rates, Managing Director T S Bhattacharya said.
The five years to ten year bracket will attract 8 per cent rate (7.25 per cent being old rate).
The 3 years to less than 5 years will carry 7.75 per cent (7 per cent) and one year to less than three years 7.50 per cent (6.75 per cent). The deposits with 180 days to less than one year maturity will have 6.50 per cent rate (6.25 per cent)
Another senior SBI official said the expectations from the customers have changed (read demand better rates) and the bank also has to respond to competing banks which have raised interest rates.
The revision in rates will impact the margins by couple of points but this impact will be seen only over nine to 12 months, official said. Its cost of deposits was 4.51 per cent in September 2006 down from 4.64 per cent a year ago. The net interest margin was (NIM) 3.32 per cent (3.12 per cent)
The deposit base rose by 10.77 per cent to 3,93,615 crore (Rs 3,936.15 billion) as the end of September 2006 from Rs 3,54,442 crore (Rs 3,544.42 billion) a year ago. The share of low cost deposits (savings plus current deposits) was 43 per cent at end of September 2006.
