State Bank of India hikes short term retail FD rates by 25-75 bps

The State Bank of India (SBI) has hiked interest rate on retail term deposits by 25-75 basis points for deposits up to 1 year, giving further push to competition for raising resources.

The revised rates for deposits came into effect from May 15, 2024.

In the retail term deposits below Rs 2 crore, the revised rate is 5.5 per cent, up from 4.75 per cent for the 46-179 days maturity bucket.

The new rate for 180-210 day’s bracket is 6.0 per cent as against 5.75 per cent and in 211 days to less than one year is 6.25 per cent as against 6.0 per cent.

In case of bulk deposits, those of Rs 2 crore and above, the increase was between 10-50 basis points across short, medium buckets.

According to a senior SBI official, the rate action was meant to meet credit demand requirement which remains strong.

“While the current market conditions, like liquidity, have been factored in, the decision also reflects view on interest rate trajectory,” the official said.

The rates are expected to soften in the later part of the current financial year and hence rate hike for retail category (below Rs 2 crore) is restricted to short term deposit only.

The bank does not want to lock itself into high rates for long and medium term, the SBI official added.

India Ratings, in its Primary Corporate Bond and Commercial Paper Market Tracker, said rates in the banking system could stay elevated, at least in 1HFY25 due to sustained tightness in the banking system liquidity amid a strong credit demand.

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Moreover, the fading hope for a deeper policy rate cut will favour the elevated rates in the banking system.

“When largest bank has taken a decision, others will follow suit. It is a question of time. The competition is from within (amongst banks) as well as from other segments like Mutual funds,” said a senior Bank of India (BOI) executive.

Madan Sabnavis, chief economist, Bank of Baroda, said there is no systematic liquidity issue. The rate revision is a reflection of bank specific asset liability management conditions and strategy for keeping in growth expectations.

SBI’s deposits grew by 11.13 per cent Y-o-Y to Rs 49.16 trillion and advances by 15.24 per cent as of March 2024. The bank has guided for 12-13 per cent growth in deposits and 14-16 per cent for advances in 2024-25. For the banking industry as a whole, credit offtake recorded growth of 20.2 per cent while deposits grew by 13.5 per cent in Fy24 and the momentum with some moderation, is expected to continue in FY25 too, according to SBI analyst’s presentation.

In post monetary policy interaction in April 2024, RBI deputy governor J Swaminathan had said banks are quite active in terms of mobilising deposits because there is a 3.0 to-3.5 per cent per cent gap (between deposit and credit growth rates) that is visible for more than a year’s time now.

“And also, we are seeing that the customers are also becoming price sensitive. There is a significant movement towards the term deposits. The proportion of CASA is declining as a part of the total deposits,” RBI deputy governor added.

For SBI, the share of its low costs liabilities -- current and savings account (CASA) – in total deposits stood at 41.11 per cent as of March 31, 2024, down from 43.8 per cent a year ago.

However, there was an increase in the share of CASA over 41.11 per cent in December 2023.

The BOI official said most banks are running credit deposit ratio (CD Ratio) near 80 per cent and the demand for credit is expected to remain robust in the current financial year. This is driving the bank to step up efforts to mobilise resources even in the first quarter which is seen as a relatively quiet period of the financial year.

RBI data showed the CD ratio of the banking system was 79.5 per cent in the middle of April 2024, up from around 75.4 per cent a year ago. In case of SBI, CD ratio was 68.34 per cent at the end of Fy24, up from 65.28 per cent a year ago. While the bank has still room to grow with current resources, it wants to be prepared for a rise in credit for capital expenditure and retail demand, the SBI officials pointed out.