SBI spices up rate to woo bulk deposits

Stung by rising costs, State Bank of India (SBI) wants to further reduce dependence on expensive large corporate deposits.

The bank, with about 19 per cent market share, will offer its highest fixed deposit rate of 8.25 per cent on Rs 15 lakh to Rs 1 crore for a year and more and 25-50 basis points more than on deposits of less than Rs 15 lakh, from January 8, 2007. Large corporate deposits of Rs 1 crore and above cost around 9.5 per cent for a year. SBI's cost of deposits has been rising since early this year. It was 4.47 per cent at the end of June 2006 and 4.51 per cent at the end of September 2006.

The cost of deposits would rise further at the end of December 2006, with the bank having effected a 25-75 basis points increase in rates across the board with effect from December 11, 2006.

The rising costs of deposits for SBI were reflected in shrinking net interest margin (NIM) to 3.32 per cent at the end of September 2006 from 3.37 per cent at the end of June 2006 and from 3.40 per cent as on March 31, 2006. The bank increased its prime lending rate (PLR) by 50 basis points to 11.50 per cent effective December 28, 2007.

The offer of higher rates on larger deposits for a year and above was to have a stable source of funds and avoid the huge pressure from large depositors for higher rates, a senior SBI official said.