SBI cuts deposit rates by 50-75bps

Times of India 30/07/2019

MUMBAI: The country’s largest lender State Bank of India (SBI) has announced a sharp reduction in fixed deposit rates. The cut will translate into lower lending rates in the coming weeks as the benchmark for loans is calculated based on the cost of funds. The reduction, which is in the range of 50-75 basis points (100bps = 1 percentage point), has been attributed to the “falling interest rate scenario and surplus liquidity”. Rates have been revised for both retail, as well as bulk deposits of above Rs 2 crore, and will come into effect from August 1.

For time deposits with longer tenors, there is a reduction of up to 20bps in the retail segment and 35bps in the bulk segment. Interest rates have been slashed by 50-75bps for time deposits with shorter tenors of up to six months. SBI officials said that the bank was comfortable in terms of liquidity and was raising enough to meet credit demand.

Earlier last week, Bank of Baroda had cut its FD rates and had also brought down its savings account rates by 25bps to 3.25%.

SBI, which has the largest branch network at 22,010, controls more than a fourth of retail banking activity in India. Traditionally, SBI’s deposit rates have been the lowest among all banks and it sets the floor for FD rates across the banking system. With this reduction, most private and public sector banks are expected to announce cuts in deposit rates.

It is widely expected that the RBI will reduce rates by a further 25bps in its monetary policy review next week. Some economists believe that the RBI might choose to pause given that existing rate cuts have not been passed on. In a recent interview with TOI, RBI governor Shaktikanta Das had said that it had brought down rates by 75bps and the change in stance could be read as a further 25bps cut. As against this 100bps signal by the RBI, banks have reduced rates by just over 20bps.

“We continue to expect the RBI monetary policy committee to cut rates by 25bps on August 7 with July inflation tracking a low 3%...sit out the temporary increase in inflation on base effects/drought and cut again in February,” said Indranil Sen Gupta, India economist at DSP Merrill Lynch (India).

Earlier this month, SBI had brought down its marginal cost of lending rate by 5bps and is likely to bring it down further next week. The rate comes at a time when globally interest rates are softening. Morgan Stanley said in an international report that it expects 21 central banks to ease monetary policy, including a large number from Asia.