SBI Hikes Deposit Rates By 25-80 Basis Points, Sets Course For Other Lenders
SBI raises fixed deposits sharply, other banks likely to follow suit.
The State Bank of India, the country’s largest lender, has raised the rates of interest offered on most of its term deposits worth less than Rs 2 crore by 25-80 basis points with effect from Saturday, according to an update on its website.
The increase comes after a spate of rate hikes by the Reserve Bank of India since March this year.
The latest hike of 50 basis points, at the end of September, took the total increase in policy rates to 190 basis points this year. A basis point is 0.01%.
SBI’s latest move takes the rate on regular fixed deposits of less than Rs 2 crore to 6.1% for a term of more than one year and less than two years, and 6.25% on terms of more than two years and less than three years.
The biggest increase, of 80 basis points, will be on deposits between 211 days and 364 days.
The rate offered to senior citizens is generally higher by 50 basis points.
While banks have increased deposit rates over the past few months, the increases have not kept pace with the rapid rise in policy rates.
Transmission of increases in the policy rates to deposit rates usually takes place with a lag.
In fact, SBI’s revision in interest rates is the steepest undertaken by any bank after the most recent change in policy rates. This will likely cause other large lenders to follow suit and raise deposit rates.
For instance, HDFC Bank Ltd. on Oct. 11 raised its deposit rates. Post that, the rate of interest offered on deposits between nine months and a year stands at 5%—50 basis points lower than the comparable SBI deposit.
Similarly, HDFC Bank’s 1-2 year fixed deposits yield 40 basis points less, and 2-3 year deposits bear 45 basis points less. The private bank’s 3-5 year and 5-10 year fixed deposit rates are comparable with those of SBI.
With the increase in rates, fixed deposits are once again becoming lucrative. But investors should bear in mind that they will likely be unable to beat inflation, especially if they fall in the highest tax bracket. The interest received on fixed deposits is taxed at the slab rate.