SBI cuts deposit rates by 0,25% as lending slows

State Bank of India (SBI), the country's largest lender, has announced a 0.25-per cent reduction in interest rates on retail deposits below Rs1 crore of select maturities, effective 8 December.

Accordingly, fixed deposits of maturity between 1 year and less than 3 years will fetch 8.5 per cent against 8.75 per cent earlier. Fixed deposits of 3 to 5 years maturity will also fetch 8.5 per cent interest, while for 5 years and above it will be 8.25 per cent against the existing 8.50 per cent.

The above rates will also be applicable to NRE deposits for tenors of one year and above.

This is the second time that SBI has opted to cut deposit rates in the past 8-10 weeks. Over the coming days, the bank is likely to lower lending rates as well in order to shake off a stagnation in lending activity.

"The liquidity is quite adequate in the system and therefore we felt that paying higher interest doesn't make sense and many of the large high value corporates have been accessing the market at much lower rate," a CNBC-TV18 report quoted VG Kannan, MD, SBI, as saying.

SBI had last month lowered rates on deposits on 7-45 day retail deposits.

Private sector lenders ICICI Bank and HDFC Bank have recently lowered their interest rate on fixed deposits.

While banks in India have seen a growth in deposit collections and the banking system has been flush with funds, credit growth has slowed, leaving banks to struggle with excess liquidity and also forcing them to slash fixed deposit rates.

Credit offtake has been slow as corporates are yet to kick-start investments in a big way. For example, bank credit rose 11.17 per cent to Rs 62,72,621 crore in the fortnight ended 31 October.

The demand deposits had risen 14 per cent to Rs 7,40,675 crore in the fortnight ended 15 November  as against Rs 6,48,319 crore in the year-ago period.