Mumbai: The country’s largest lender State Bank of India (SBI) has hiked retail fixed deposit rates by up to 25 basis points across select tenures, a sign that interest rates are headed northwards.

One basis point is one-hundredth of a percentage point.

A fixed deposit of less than Rs1 crore for a period of 1 to 2 years will now fetch an interest rate of 6.65% as against 6.40% earlier. For 2 years to less than 3 years, new deposit rates are fixed at 6.65% as against 6.60% earlier. The rates have been kept unchanged for deposits above Rs1 crore.

The new fixed deposit rates took effect on 28 May.

SBI had last revised its interest rates on 23 March by 10-25 bps for retail deposits of over two years and also in 1-2 years category for deposits of more than Rs1 crore.

The bank is also set to announce its decision on Marginal Cost of funds based Lending rate, or MCLR, on Friday, which is also expected to be revised upwards. The last time SBI had hiked its lending rate was in March when it raised MCLR by 10-20 bps.

Last month, HDFC Bank had revised fixed deposit rates by up to 100 bps.

The increase in SBI FD rates comes ahead of the Reserve Bank of India’s (RBI’s) monetary policy meeting on 4-5 June. Mint had on 21 May reported that economists have revised their expectations from the policy, with some expecting a hike in the repo rate.

“We have aligned our interest rates with the market. The dividends of demonetisation have faded and we would need deposit growth to pick up from hereon to support an expected increase in credit growth," said a senior SBI official requesting anonymity.

For the year ended 31 March 2018, SBI had reported domestic credit growth of 7.5% and deposit growth of 4.2%. The management expects a loan growth of more than 12% by the end of March 2020.

With bond yields rising and liquidity surplus drying up in the bond market, most high rated corporates are shifting to the loan market for their borrowings, the official quoted above said.

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