State Bank of India (SBI), the country’s largest lender, announced sharp increases—by up to 150 basis points — in deposit rates, as banks aggressively compete for funds to meet burgeoning credit demand.
Both SBI and ICICI Bank on Monday also said they are raising their prime lending rates by 50 basis points. Banks have been raising benchmark lending rates following a hike in policy rates by Reserve Bank of India in its last quarterly review.
SBI announced the single-largest increase of 150 basis points on deposits of up to 45 days since at least 1997, data for which is available. It will now pay 4 percent on such deposits, compared with 2.5 per cent earlier.
The bank will pay between 25 basis points and 150 basis points more on deposits on almost all nine maturities ranging between 15- 45 days and up to 10 years, as demand for funds begins to rise in an expanding economy. SBI also launched floating-rate term deposits linked to its base rate, a move aimed at luring depositors in a rising interest rate scenario, said a banker.
“The increase is sharp on short-term deposit rates, as we want to be active in the short-term lending and investment market,” a senior SBI official said. The bank hopes to increase its share of commercial paper and certificates of deposits that many companies resort to for short-term borrowing. Under the new regime introduced from July 1, banks are barred from lending at below their base rate, except to a few sectors such as agriculture.
| CATCHING UP | |
| Domestic term deposits | Revised interest rate (per annum) |
| 15 days to 90 days | 4.00% |
| 91 days to 180 days | 4.75% |
| 181 days to < 1 year | 6.00% |
| 1 year to 554 days | 6.75% |
| 555 days | 7.25% |
| 556 to < 2 years | 6.75% |
| 2 years to 999 days | 7.00% |
| 1000 days | 7.25% |
| 1001 days to < 3 years | 7.00% |
| 3 years to < 5 years | 7.25% |
| 5 years to < 8 years | 7.50% |
| 8 years to < 10 years | 7.75% |
SBI will raise its lending and deposit rates from Tuesday, while ICICI Bank plans to increase its prime lending rate from August 18.
SBI’s 50-basis point hike in its benchmark prime lending rate to 12.25 per cent brings it to June 2009 levels, a move that will push up the cost of corporate loans, as also home and other personal loans. It left its base rate unchanged at 7.5 per cent.
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Last month, SBI was reported to have requested permission to keep loans of up to 30 days out of the base rate regime, a move that would have enabled it to lend short-term loans at below the base rate. However, RBI did not accede to the request.
SBI deputy managing director & chief financial officer S S Ranjan said that the increase in costs from higher deposit rates would be offset by the increase in its lending rate. SBI expects to maintain a net interest margin higher than 3 per cent in the fiscal to March 2011, an SBI official said.
The bank’s cost of funds edged lower to 5.27 per cent at end June, from 6.16 per cent a year earlier, and 6.30 per cent at the end of March 2010.
Meanwhile, ICICI Bank will raise its prime lending rate to 16.25 per cent from 15.75 per cent, the bank said in a statement. It also raised its floating reference rate for consumer loans, including home loans, to 13.25 per cent from 12.75 per cent. These rates are used to determine interest rates on loans taken up to June 30, after which the base-rate regime came into force. ICICI Bank has, however, maintained its base rate at 7.5 per cent.
Since the RBI has not favored a request from banks to introduce a so-called sunset clause, which would phase out or migrate loans given under the BPLR into the base rate, several lenders are raising their prime lending rates, say analysts. Under BPLR system, banks gave up to 70 per cent of their loans at rates much lower than the prime rate.