SBI cuts term deposit rates up to 50 bps

State Bank of India (SBI) has cut its interest rates on medium- and long-term deposits of individuals by up to 50 basis points (bps). These will apply to new deposits and renewals.

The country’s largest lender kept lending rates unchanged for May, including the marginal cost of funds-based lending rate (MCLR). The one-year MCLR is eight per cent. Punjab National Bank had reduced its MCLR by 10-15 bps across maturities from Monday; it is to also reduce interest rates on retail (by individuals) term deposits across different maturity buckets by 10-25 bps.

SBI’s revised structure shows that for two years to less than three-year term deposits, it will offer 6.25 per cent annually as against the earlier 6.75 per cent. For all brackets between three years and 10 years, depositors will get 6.25 per cent, as against the earlier 6.5 per cent. The highest rate it offers is for one-year term deposits at 6.9 per cent.

Even after this cut, SBI’s rates for medium and long-term deposits are 25-50 bps higher than those offered by HDFC Bank. Another private sector competitor, ICICI Bank, offers 25-50 bps more than SBI on term deposits between two and 10 years.

Senior SBI executives said the new financial year had begun with a good share of low-cost funds, on a huge flow of money into current and savings accounts (Casa) after demonetisation.

Incremental benefits will be limited as people withdraw money over a period. The share of Casa of the total was 46.55 per cent as of end-December, from 42.74 per cent at end-September. It was 42.7 per cent in December 2015.

SBI said it had to worry about interest income and margins, as demand for credit remains weak. Its Net Interest Margin (domestic) declined by 19 bps to 3.03 per cent as of December 2016, from 3.22 per cent as on December 2015.

NIMs were down by two bps sequentially from 3.05 per cent as on September. The margins were hit by low credit growth and easing of lending rates.

While announcing results for the December quarter, chairman Arundhati Bhattacharya had said the NIM might decline by five to six bps by end-March.

As for lending rates, after a sharp cut of 90 bps in MCLR across all maturities, the bank has kept this unchanged for four months.

The MCLR regime came into effect from April 1, 2016, replacing the base rate regime. The aim was to improve transmission of policy rate changes by the central bank, as well as transparency in fixing of rates.

It had reduced its base rate by 15 bps to 9.1 per cent and the Benchmark Prime Lending Rate to 13.85 per cent from the earlier 14 per cent.