Mumbai: In a sign of hardening rates, the country’s largest lender State Bank of India (SBI) has hiked its bulk deposit rates (for amounts in excess of Rs 1 crore) by 50-140 basis points (100bps = 1 percentage point) to bring it on a par with retail rates. This is the second time that the bank is raising its wholesale deposit rates in two months.
With the country’s largest bank raising rates, other lenders are expected to follow suit. The new benchmark rate — the marginal cost of lending rate (MCLR) — is being linked directly to borrowing costs, which raises the likelihood that interest rates on loans will also inch up in coming months.
Following the rate revision, which is effective from Tuesday, the bank will offer 5.25% on deposits for up to 45 days as against 4.75% earlier. In the maturity bucket of 45 days to 2 years, which account for most of its deposits, the bank is offering 6.25%. This is a sharp increase from the 4.85% the bank offered on deposits up to 210 days earlier. On longer term deposits of above 2 years and up to 10 years, the bank now offers 6% as against 5.25% earlier.The increase in deposit rates on most maturitieshas been higher than the increase in yields on government bonds, which have risen by more than 100bps over one year. Bankers say that the trigger for further increase in deposit rates would depend on how much the government intends to borrow. This would become clear in the Budget to be presented on Thursday. The chief economic adviser to the government on Monday had suggested that the government could go slow on its decision to curb borrowing in order to support growth.
With banks’ credit outpacing deposits in the last few months, pushing up the credit-deposit ratio, lenders are likely to raise deposit rates in the near term, says a report. According to ratings agency ICRA, liquidity has come under pressure because banks have lent more than Rs 2 lakh crore this year, against which they have raised additional deposits of only Rs 1.27 lakh crore. Typically, interest rates harden in the fourth quarter of the financial year. Also, banks that have hitherto gone slow on loans will now be able to pursue credit growth with the government announcing a capital infusion of Rs 88,139 crore into state-run lenders under a recapitalisationprogramme.
In the third quarter of the fiscal, surplus liquidity in the banking system vanished fast with deposits growing by only Rs 30,000 crore as against Rs 1.85 lakh crore of credit growth.
Source by:- timesofindia