Bank of India plans to come out with a new rate structure
for long term deposits of tenures between five and ten
years. This, the bank feels, will create a solution for
any asset-liability mismatch that may occur in future.
is significant since banks have so far been looking at
fixing rate structures for deposits of over five years
on a case by case basis.
interest rates are expected to be in the region of 11.5
per cent for 10-year deposits, which is similar to the
yields on government paper.
all deposits above three years, the bank currently pays
10.5 per cent. The deposits with longer tenure can be
made attractive only by offering higher interest rates,
according to SBI.
Bank is also planning to launch a fixed rate housing loan
scheme. Currently, it has linked the housing loan rates
to its prime lending rate.The bank will be targeting both
the retail investors and institutional investors for its
long term deposits.
In the long run, the bank expects a decline
in interest rates and hence it expects depositors to make
good use of this avenue. The bank is also planning to
lend long term loans with fixed interest rates. Reserve
Bank of India, in its April 1999 monetary policy had allowed
banks to offer long term loans.
The banking sector as a whole has been
witnessing a shift in the deposit structure. There is
a trend towards term deposits and pople are moving away
from savings deposits.
It is very clear, what State Bank's opinion
is, as regards long term rates. The bank wants to
maintain a fixed spread between its long term deposit
rates and its long term lending rates. It would thus be
able to better manage asset-liability mismatches or problems
arising out of spreads.