SBI hikes rates on bulk term deposits by 75-140 bps in aligning move

State Bank of India, the country's largest lender, has raised interest rates on domestic bulk term deposits by 75-140 basis points with effect from Monday, at a time when liquidity in the system is under strain.

''We have aligned bulk deposit rates with retail deposit rates effective today. The hike will not impact cost of funds in a significant manner,'' SBI managing director P K Gupta told CNBC TV18.

This is second hike in bulk deposit rates by SBI in a span of about two months. It had raised bulk term deposits by one per cent (100 basis points) in November 2017.

Elaborating on the reasons for the current hike rate, Gupta, managing director (retail and digital banking) told Business Standard that the rates the bank offered on bulk money were below those offered by competing banks. So this was really a realignment of rates.

Deposits of Rs1 crore and above are classified as bulk deposits.

The bank has sufficient liquidity but that in the system is under strain. In fact, there is a liquidity deficit of about Rs100-150 billion (Rs10,000-15,000 crore), he said.

According to Gupta there is enough liquidity in the market but the corporate demand has still not picked up, while credit growth is seen only in retail segment. He also told CNBC TV18 that bank's deposit rates are very low when compared to industry rates.

The share of bulk deposits rates in SBI's total deposits is small and it will not make much of a difference to its cost of funds, Gupta added.

The bank hasn't tinkered with retail term deposits and has left lending rates untouched. SBI executives said the asset liability committee continues to review rates on regular basis.

SBI shares soared 2.5 per cent intraday after this announcement. In November last year, India's largest lender increased interest rates by 1 percentage point across all maturities for bulk deposits greater than Rs1 crore. It left rates for deposits below Rs1 crore unchanged.

Deposit growth in India's banks has fallen to 8.14 per cent as on 10 November compared to 15.9 per cent a year ago.

The bank brought New Year's cheer for its customers by reducing its Base Rate as well as the Benchmark Prime Lending Rate (BPLR) by 30 basis points (bps) with effect from 1 January 2018. The revised base rate was reduced from 8.95 per cent to 8.65 per cent for the bank's existing customers, while BPLR was reduced from 13.70 per cent to 13.40 per cent.

Additionally, the bank had decided to extend the on-going waiver on home loan processing fees till 31 March 2018 for new customers keen on buying their dream house as well as other customers looking to switch their existing loans to SBI.

For short-term deposits (46-179 days and 180-210 days), SBI offers offer 6.25 per cent, up from 4.85 per cent. SBI will pay 6.25 per cent interest rate on deposits between one year and less than two years (5.25 per cent earlier). For deposits with maturing between two and 10 years, the new rate is 6 per cent (up from 5.25 per cent).