SBI lowers FD rates by 0.25 percent

State Bank of India (SBI) has trimmed
its deposit rates by 25 basis points
(bps) across all maturities and has
withdrawn the special 1,000-day deposit
scheme with effect from next Monday.

Now, the bank is likely to offer 6.75 percent
on deposits for 2-3 years, which includes
the 1,000-day tenure, against seven percent
earlier. The reduction in rates brings
SBI's rates in line with what is offered
by some large public sector banks.

This move also appears to be counter cyclical,
considering that surplus liquidity is slowly
drying up and the central bank has been
repeatedly warning about the need to
withdraw monetary accommodation.

The SBI Chief Financial Officer SS Ranjan said,
"The move to cut deposit rates would not
impact deposit mobilisation drive.
The reduction is marginal. We don't
think customers will move out due to
this. We expect second quarter margins
to improve over the first quarter.
While third quarter margins will be even better."

However, the rate cut has to be seen
in the context of SBI's net interest
margin, which stood at 2.3 percent
for the quarter ended June 2009, down
63 basis points over March 2009.
Since June, the bank has also announced
multiple reduction in interest rates
on home, auto and SME loans.

It lowered deposit rates by 225 basis points
from the beginning of this calendar year.
It lowered rates from nine percent in
January 2009 to 6.75 percent now.


In the same period, the bank lowered its
prime lending rate once from 12.25 percent
to 11.75 percent.

The bank has reduced interest rates
on several retail products like home
loans, auto loans and education loans
to 8-10 percent.