Mumbai: India’s largest lender State Bank of India (SBI) on Tuesday raised its lending rates by 75 basis points and short-term deposit rates by as much 2.25 percentage points, in response to Reserve Bank of India’s 0.5 percentage point policy rate hike last week.
Following this, the bank’s minimum lending rate, or base rate, becomes 9.25% effective 12 May. This is in line with other lenders in the market. When base rate was introduced in July, SBI decided to keep it at 7.5% while other banks fixed their base rates at 8.25-8.50%. Subsequently, SBI had raised the base rate to 8.5%. After the central bank’s policy announcement, most banks have raised their lending rates by 0.5%. Some have raised their deposit rates by 0.25%, while some of them have kept their deposit rates at the same level even after raising lending rates.
Deposits of 7-14 days at SBI will now earn 6.25%, up from 4%. Its 15-90 day deposits too will fetch 6.25% and 91-180 day deposits 7%. This is the sharpest deposit rate hike by any bank and other banks may have to follow suit as SBI dictates the interest rate behaviour of the Indian banking industry.
According to an analyst, by doing this, SBI is trying to attract funds from the liquid mutual funds investors.
“By keeping interest rates low, we were doing financial oppression. It is time that we reward our customers by giving them higher interest rate on their deposits, ” said Pratip Chaudhuri, bank’s chairman.
Analysts find this move smart.
“Anyway, banks are borrowing overnight money from RBI at 7.25%. They can always pay 6.25% for short term money to depositors,” the analyst quoted earlier said.
He declined to be named as his firm’s policy does not allow him to speak to reporters.
Chaudhuri said in a rising rate scenario only loans cannot become costlier; banks should raise returns to depositors too.
SBI raised deposit rates in the shorter tenure basket of up to 180 days and left its longer tenure basket unchanged. SBI chairman had indicated in the bankers’ meet early this month that longer tenure rates are at quite elevated level.