SBI hikes term deposit rates by 25-50 bps

Long-term depositors may just get some relief in these times of high inflation. After a lull, banks could be on the verge of hiking deposit rates. The first indications of that came on Monday, when the country's largest lender, State Bank of India (SBI) announced a deposit rate hike of 25-50 basis points in specific categories.
This may, after a point, lead to a hike in lending rates, as banks begin to feel the pinch of dearer funds. SBI's move comes after a 75-bps hike in the cash reserve ratio (CRR) by the Reserve Bank of India (RBI) in a bid to rein in surging inflation.
SBI's hike is effective for deposits of between two and ten years, and will come into effect from June 1. The two- to three-year term deposit rate will be raised to 8.75% from 8.5%, and five- to ten-year deposits would fetch 9% from 8.5%.
Other banks, however, have preferred not to follow SBI just yet. KC Chakrabarty, CMD of state-owned Punjab National Bank, said his bank would take a view on the matter at its asset liability committee meeting shortly. "I have to look into the issue. Our Alco will meet and decide. However, interest rates appear stable," he said.
TS Narayanasami, CMD of public sector Bank of India said his bank would keep a watch on the movement of rates in the government securities market before taking any decision. Added MBN Rao, CMD of Bangalore-based Canara Bank: "Although we are not in a hurry to alter our rates, we might have to take a call if inflation does not come down in the near future."
However, SBI has left untouched deposits in the short- and medium-term category. "With inflation at over 7%, the bank has to pay more to depositors to attract resources,'' said a senior SBI official.
On whether a similar hike is on the cards for lending rates, the official said the bank has no immediate plans. "We will not face an asset-liability mismatch as we have not increased our short-term and medium-term rates. At best, it would affect us by one or two basis points," he said.
Analysts point out that the bank has taken a long-term view of the rate scenario whereby, contrary to current expectations, inflation may continue to be on the higher side. But despite the banks' apparent comfort on the liquidity scenario for now, analysts warn the current position could change for the worse in a matter of days.
This is because the government is now talking about allowing a steep hike in oil prices and banks would have to raise deposit and lending rates.
State-owned banks refrained from hiking rates after the 75-bps hike in CRR announced in phases by RBI. "But beyond a point, the market would determine rates," said an analyst.
The State Bank Group, which controls 23% of the country's banking business, has projected a 25% growth in loans in the year to March 2009, compared with 20% outlined by RBI in its latest annual credit & monetary policy. SBI shares ended 2.3% lower at Rs 1,537.70 on a BSE that lost 1.8% on Monday.