SBI cuts deposit rates by up to 50bps, other banks may follow

MUMBAI: State Bank of India has cut interest rates on term deposits by up to 50 basis points. Deposits of two-to-three years maturity will now generate a return of only 6.25% annually as against 6.75% earlier. The revision in interest rates came into effect from April 29 and takes into account the growth in deposits following the merger of associate banks.The new rates will apply only to fresh deposits and existing deposits on renewal. The bank also announced a reduction in its deposits with a maturity of over three years to 6.25% from 6.5%. The highest return offered by the bank for general investors is now in the one-year to 455 days category where it offers 6.9%

.SBI has, however, decided to maintain interest rates for senior citizens on most maturities, including the one-year to the 455-day segment where they will continue to get 7.4%—the highest return available earlier. In the two-to-three year segment rates have been reduced for senior citizens by 50 basis points. In deposits above three years, senior citizens will get 25 basis points lower than before.

The bank has also not changed its key lending rates. Its one year marginal cost of lending rate (MCLR) stands at 8.00%. Most borrowers have their home loans linked to the one-year MCLR. Given that MCLR is linked by a formula to cost of funds it is likely that the benchmark rate too will decline as deposits mature.

Since SBI is the largest bank with a market share of close to a fourth of total bank deposits, the reduction in deposit rates could result in other banks following suit.