MUMBAI: In a move to protect its net interest margin, country’s largest bank , State Bank of India (SBI) on Saturday cut interest rates on its special 1,000-day deposit scheme by 25 basis points to 7%. The reduction in rates will bring SBI deposit rate at par with other public sector banks in the industry. The bank has not reduced rates on any other slab. The reduction in rates would be effective from September 8. ( Watch )
So far, SBI has seen maximum deposit collection in its 1000-day scheme and therefore a reduction in rates in this scheme will help the bank reduce its interest cost substantially. SBI’s current offer of 7.25% is slightly higher than the rate offered by most of its peers in the industry for that period (for 1000 day or between two to three years).
Incidently most large banks have reduced interest rate on deposits rates few weeks back. Banks like Union Bank of India, Punjab National Bank and ICICI Bank have been offering 7% for two to three years (which is comparable to 1000 day deposits), while Bank of Baroda had cut rates to 6.5% and HDFC Bank is offering 6% for the same period.
Bank analyst say that SBI’s margin (difference between the cost of funds and yield on advances) has been under pressure due to slowdown in credit growth. The bank had reported net interest margin of 2.3% for quarter ending June 09, down 63 basis points over March 09. However, SBI officials has earlier indicated that they do not expect margins to improve significantly in the second quarter.
In fact in a recent interveiew with media, O P Bhatt had said that poor demand in credit has resulted in SBI parking over Rs 65,000 crore daily with the Reserve Bank of India’s reverse repo window which gives a return of 3.25%.
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