State Bank of India hikes deposit rates by 0.75%

Ahead of an expected hike in the Reserve Bank of India's policy rate, State Bank of India (SBI), on Wednesday announced a steep increase in deposits rates across the board by up to 0.75 per cent, with immediate effect.

The latest revision, which follows three consecutive revisions of bulk term-deposit rates by the lender in the past three months, signals a hardening of interest rates across the banking system.

State Bank of India has upped interest rates on domestic retail term deposits (up to Rs1 crore) by up to 50 basis points across tenors with effect immediate effect.

With India's largest bank hiking retail deposit rates, other banks are likely to follow suit.

The maximum increase of 50 basis points is in four maturity buckets – 7 days to 45 days, 2 years to less than 3 years, 3 years to less than 5 years, 5 years and up to 10 years.

The new interest rate on the 7-to-45 days maturity deposits is 5.75 per cent (5.25 per cent earlier) while for deposits above two years, the new interest rate is 6.50 per cent (6 per cent earlier).

For deposits of 211 days to less than 1 year,  1 year, above 1 year to 455 days and 456 days to less than 2 years the interest rate has been raised by 15 basis points. The new interest rate on deposits in these maturity buckets is 6.40 per cent against 6.25 per cent earlier.

For deposits of 180 days to 210 days maturity, SBI now offers 6.35 per cent against 6.25 per cent earlier. On the 46 days to 179 days maturity deposits, the interest rate is unchanged at 6.25 per cent.

Any hike in deposit rates by market leader SBI could result in a simultaneous increase in lending rates across the banking sector.

Since lending by banks are based on the marginal cost of funds-based lending rates (MCLR), any upward revision in the cost of funds, including deposit rates would lead to a revision in lending rates as well.

All the new rates come into force immediately, the bank said in a statement.

It can be noted that many banks have been increasing their deposit and lending rates since the last quarter.

While lending rates have been jacked up on an average of 5-10 bps by private sector lenders like HDFC Bank, Axis Bank, Kotak Mahindra Bank and Yes Bank since January, almost all the state-run lenders have been increasing their bulk deposit rates in the range of 15 bps to 125 bps.