SBI raises deposit rates by 25-175 bps

State Bank of India (SBI), the country's largest bank by assets, has raised the deposit rates by 25-175 basis points with effect from tomorrow.

ICICI Bank does not have any plans to increase the deposit rates "as of now", though a review takes place on a continuous basis.

SBI would now offer interest of 8.75 per cent on deposits of 1 year to two years, which is a 50 basis points increase on its earlier maturity slab of 1 year to 549 days and a 25 basis points hike on 550 days deposits. 

REVISED POSITION Largest PSU bank vs largest private bank
	SBI	ICICI Bank
46-90 days	5.25%	4.00%
91-180 days	7.00%	6.25%
181-364 days	7.50%	6.25%

The increase in deposit rates is much sharper in maturity periods that are lesser than a year.

SBI would now pay 7 per cent on 91-180 day deposits, which is 175 basis points more, and 7.5 per cent on 181 days to less-than-a year deposits, an increase of 100 basis points. "Some banks were offering higher rates in certain brackets. So we decided to revise the rates," SBI's deputy managing director and chief financial officer, Ashok Mukund, said.

SBI had in fact reduced its deposit rates, including the peak rates, on December 17, 2007, in order to protect its net interest margins and increase them back to above 3 per cent by the end of 2007-08.

SBI has reduced its peak deposit rates from 9.5 per cent since September 2007.

T S Narayanasami, chairman and managing director, Bank of India (BoI), said, "I have always maintained that we do not believe in reducing rates as other banks did. It is better to mobilise as much deposits as possible now rather than after interest rates rise because of credit expansion."

Narayanasami further said "Credit has picked up now. There is no liquidity crunch though. We don't intend to raise rates across the board, but we may pick up (bulk) deposits by paying a little more (than the card rate), depending on our credit expansion and credit-deposit ratio."

BoI raised about Rs 1,000 crore in bulk deposits in the last three weeks at around 9 per cent, 0.5 per cent more than the card rates for large deposits.

A senior ICICI Bank executive, who did not want to be quoted, said "the liquidity is quite good at the moment. It is expected to tighten at the end of March. The bulk deposit market had seen some pressure towards December 2007-end, but this has eased now."

A senior SBI executive, who did not want to be quoted, however, said "liquidity is tight in the market, and the pressure could mount by the end of this month, in line with the rising credit demand."