SBI increases term deposit rates

A huge dent caused by the redemption of India Millennium Deposits (IMDs) has forced the State Bank of India (SBI) to follow the other banks in raising interest rates on domestic term deposits.

The largest public sector bank has hiked interest rate on domestic deposits by 25-50 basis points (bps), while the Union Bank of India has raised its deposit rates by 25-75 bps, BoI by 25-50 bps and Bank of Baroda (BoB) by 25 bps in December 2005.

PNB raised its deposit rates by 25-50 bps early last week. A senior SBI official said, "More than 10 banks have already raised deposits rates. The branch staff has given feedback that raising resources without an upward revision in rates was becoming a tough task. We are now catching up with other banks."

Most banks have been partly funding credit growth for almost about a year now through liquidation of investments. Credit growth from October 1, 2005, to December 23, 2005, was almost three times the deposit growth.

Credit growth during the period was Rs 79,957 crore against a Rs 28,547 crore increase in deposits in the year-ago-period.