Lending rate hike coming? SBI raises term deposit rates across maturities

In an announcement on its website, the bank said, effective Wednesday, 7- to 45-day deposits will earn an annual interest rate of 5.75 per cent, from 5.25 per cent earlier

The country's largest lender, State Bank of India (SBI), has raised retail term deposit rates by 10 to 50 basis points across maturities. One basis point is a hundredth of a percentage point.

In an announcement on its website, the bank says effective Wednesday, 7-45 day deposits will earn an annual interest rate of 5.75 per cent up from 5.25 per cent earlier. Deposits of one year will now earn 6.40 per cent up from 6.25 per cent, while deposits maturing between 2 years and 10 years will earn 6.50 per cent up from 6 per cent. Senior citizens will earn 7 per cent on deposits, up from 6.50 per cent earlier.

"The proposed rates of interest shall be made applicable to fresh deposits and renewal of maturing deposits," SBI said in its notification.

SBI has also raised interest rates on bulk deposits aboveRs 10 million by 25 to 75 basis points across maturities. A senior SBI executive said liquidity was becoming tight in the system, and banks had little choice but to raise rates upwards to attract funds.

On January 30, SBI had raised the interest rate on domestic bulk term deposits by 75-140 basis points. It was the second hike in bulk deposit rates by the lender within two months. It had earlier raised the rate by 1 percentage point in November 2017.

A deposit rate hike is usually followed by a lending rate hike. This indicates that interest rates in the economy have moved up even when the Reserve Bank of India (RBI) has kept its policy rates unchanged for the third time in February.