Surplus liquidity and slower-than-anticipated credit pick-up have prompted State Bank of India to cut the interest rate on retail term deposits of one year to less than three years duration to 8.75 per cent from 9 per cent.
Simultaneously, India’s largest bank increased the interest rate on short-term deposits of 180 to 210 days duration from 7 per cent to 7.25 per cent, bringing it on a par with what competitors are offering.
The new deposit rates are effective from September 18.
Loan growth in the banking system is not keeping pace with deposit inflows, said Praveen Gupta, Deputy Managing Director and Chief Financial Officer, SBI. Hence, the decision to cut interest rate on retail term deposits of one year to less than three years duration.
Faced with tepid credit offtake, banks are investing their surplus liquidity in Government securities. On an average, public sector banks’ SLR (statutory liquidity ratio) investments are in excess of the requirement by 5-6 percentage points. SLR, which is the slice of deposits that banks have to invest in Government Securities, is currently at 22 per cent.
In a statement, SBI said: “With the inflation also trending down at a faster clip, this rate adjustment will continue to ensure that the savers are compensated adequately with a positive real rate on their deposits.”
To a question on whether the bank will pare its benchmark lending rate (also know as the base rate), Gupta said a cut in the lending rate, if any, can only happen with a lag.