State Bank of India wants a fix on long term rates
20 Aug 1999
The State 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.
This move 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.
The 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.
For 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.
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.
