State Bank of India, the country’s largest bank, today said that it is withdrawing its blockbuster 1,000-day deposit scheme that was largely instrumental in helping it mop up over Rs 1,000 crore a day at the height of the global financial crunch late last year.
From Tuesday, the scheme, which was offering 10.5 per cent annual interest in October last year, will be merged with the two-to three-year deposit scheme on which SBI will pay 7 per cent interest. Till recently, the 1,000-day deposits offered 7.25 per cent annual interest.
“The scheme was there for 11 months. On review, we decided to discontinue it. We may also re-introduce it going ahead,” SBI Chief Financial Officer S S Ranjan told Business Standard.
The bank has, however, left other deposit rates unchanged, with the peak of 7.75 per cent available on eight- to 10-year deposits.
Ranjan said SBI was not planning to lower other deposit rates at present. Having mopped up over Rs 1,000 crore a day, SBI is grappling with a fall in its net interest margin (NIM), which is also due to low credit demand. As a result, the bank has lowered deposit rates on four occasions since April.
SBI’s NIM fell 73 basis points to 2.30 per cent at the end of June 2009 from a year ago.
Its cost of deposits moved up to.6.16 per cent at end of June from 5.71 per cent a year ago. The bank expects its NIM to improve by four to six basis points during the second quarter (July to September 2009) but it would still be below the 3 per cent comfort level. SBI executives have, however, defended the decision to raise funds through the 1,000-day scheme, which was also adopted by banks such as Union Bank of India. The executives said that the scheme helped SBI attract retail customers who tend to be more loyal than the corporate customers. The large fund mop-up is expected to help the bank retire high-cost bulk deposits raised from companies.
