SBI now to bid for bulk deposits

Bank major saw sharp rise in credit growth in Dec 2006.

State Bank of India (SBI), the country's largest bank, has now decided to "bid" for bulk deposits of Rs 50 crore as its deposits continued to grow at a slower rate from a year earlier.

The urgent need to tackle the dwindling deposits growth also made the bank offer 8.25 per cent interest on all deposits till March 31, 2007, irrespective of the size of deposits, just 10 days after it offer the rate on deposits of Rs 15 lakh to Rs 1 crore.

SBI sources said the bank would, however, bid for large deposits on a "select basis". The bank had said on January 6 that it was offering 8.25 per cent interest on large deposits to stay away from the more costlier corporate deposits.

"Corporates have large surplus owing to rising profits, while individuals are using funds more for investments than saving''a senior SBI official said.

"We have had to change our business strategy to mop up funds for meeting credit demand,"

SBI witnessed a sharp rise in credit growth in December 2006 to push up year-on-year loans growth to around 27 per cent at the end of the quarter from around 23 per cent a quarter ago.

Banks are currently offering interest ranging from 9.30-9.60 per cent on one-year bulk deposits.

Intense competition among banks to garner resources is jacking up interest rates. While banks are looking at meeting credit demand in the short term, the high cost of funds will have consequences on margins and profitability for a long term, an analyst said.

The rising costs of deposits for SBI had already reflected in its net interest margin (NIM) shrinking 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.