State Bank of India has reduced short-term fixed deposit rates by 25 basis points (bps) or 0.25 per cent as liquidity in the system has improved.
The deposit rate revision has taken place for tenures below 24 days.
The new rates, applicable only on deposits below Rs15 lakh take effect today. Now, deposits maturing between seven and 180 days will fetch seven per cent and deposits for 180-240 days will fetch 7.25 per cent. Deposit rates for tenures above 240 days and for deposits above Rs15 lakh and up to Rs1 crore have not been changed.
''The liquidity situation in the shorter end has improved in recent times, reflected in the banks' borrowing figures. The (daily) liquidity deficit in the system has come down to Rs80,000 crore from above Rs1.2 lakh crore. This is the main reason for the rate cut,'' Business Standard cited a senior SBI official as saying.
While the cut is a small one, it is considered significant as the rates of the country's largest lender are considered a benchmark by other banks, which may follow suit.
This is the second round of reduction in deposit rates by the lender since the policy rate cut announced by the Reserve Bank of India (RBI) on 17 April. The central bank is scheduled to next review the monetary and credit policy on 18 June.
However, this cut in deposit rates will not significantly affect the cost of funds. SBI is yet to revise its benchmark lending rate or the base rate, which depends on a bank's cost of funds.
Following a 50 bps policy rate reduction by RBI, most lenders have revised their base rate downward. SBI has one of the lowest base rates in the sector and had reduced rates on retail, education and small and medium enterprise loans.