While public sector banks are waiting for cues from the State Bank of India on increasing the interest rate on Savings Bank deposits, the latter is in no hurry to up the rate.
India’s largest public sector bank, among others, is considering levy of user based charges and differential pricing for customers having maintaining funds in these deposits, said a top official.
“We are not going to be the first bank (in the public sector) to make the move (of raising SB interest rate),” said Mr Diwakar Gupta, Managing Director & chief financial officer, SBI, on the sidelines of the Bankers’ conference.
Underscoring the fact that it would be a tough call to take for all large banks, including SBI, on raising SB interest rates, Mr Gupta said if his bank were to increase the SB deposit rate by 100 basis points (which is equal to 1 per cent change) then the profitability could be impacted to the tune of Rs 3,500 crore. SBI has SB deposits aggregating Rs 3.5 lakh crore.
According to Punjab National Bank chairman & managing director Mr KR Kamath his bank is examining how to offset a possible increase in SB interest rate.
“We have SB deposits aggregating Rs 1 lakh crore. Suppose, we increase the interest rate on these deposits by 100 basis points then we will have to take a hit of Rs 1,000 crore. So, the outgo on account of higher interest rate has to be balanced out,” said Mr Kamath.
The PNB chief said depositors’ are unlikely to get swayed by offers of 25 or 50 basis points higher interest rates by rival banks on SB accounts as these are ‘relationship’ accounts that facilitate payment of equated monthly instalments and other payments.
The private sector banks that are offering 5 or 6 per cent interest on SB rates are small banks which want to increase their SB portfolio.
Other PSBs: Waiting for SBI to lead the way
All public sector banks will wait for the ‘big daddy’, as SBI is known in banking circles, to lead the way in upping the SB interest rate, according to Mr BS Keshava Murthy, General Manager & cfo, Indian Oveseas Bank.
Bankers estimate that a 50 basis points increase in interest rates will impact the net interest margin by about 10 basis points.
The RBI, in its second quarter review of the monetary policy late last month, deregulated the SB interest rate. Banks are free to determine interest rate of SB deposits, subject to: each bank will have to offer a uniform interest rate on these deposits up to Rs 1 lakh and for deposits over Rs 1 lakh, a bank may provide differential rates of interest.
SBI needs Rs 8,000 cr capital to support growth:
SBI needs Rs 8,000 crore capital in order to support growth before the end of the current financial year, said Mr Diwakar Gupta, Managing director & cfo. The Government is expected to pitch in with funds (about Rs 4750 crore) in proportion to its shareholding of 59.4 per cent. The mode of fund infusion by the government is being worked. The bank is yet to decide the modalities of raising the balance funds.