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May 16, 2024

SBI Increases Short-Term Retail FD Rates Amid Strong Credit Demand

The State Bank of India (SBI) has announced a hike in interest rates on retail term deposits by 25-75 basis points for deposits up to one year, effective from May 15, 2024. This move aims to strengthen the bank’s resource mobilization efforts amidst growing competition and robust credit demand.

For retail term deposits below Rs 2 crore, the revised interest rates are as follows:

  • For the 46-179 days maturity bucket, the rate has increased from 4.75% to 5.5%.
  • For the 180-210 days bracket, the rate has risen from 5.75% to 6.0%.
  • For the 211 days to less than one year category, the rate has been adjusted from 6.0% to 6.25%.

In the case of bulk deposits (Rs 2 crore and above), the rate increase ranges from 10-50 basis points across various short and medium-term maturity buckets.

A senior SBI official explained that this rate adjustment is designed to meet the strong credit demand while taking into account current market conditions, such as liquidity and interest rate trajectories. The official noted that rates are expected to soften later in the financial year, prompting SBI to restrict rate hikes to short-term deposits to avoid locking in high rates for longer periods.

According to India Ratings’ Primary Corporate Bond and Commercial Paper Market Tracker, banking system rates are likely to remain elevated at least through the first half of FY25, driven by sustained tightness in banking system liquidity and strong credit demand. Additionally, the diminishing prospects for a significant policy rate cut are expected to support these elevated rates.

A senior executive from Bank of India (BOI) mentioned that once SBI, the largest bank, makes such a move, other banks are likely to follow. The competition for deposits is not only among banks but also from other financial segments like mutual funds.

Madan Sabnavis, Chief Economist at Bank of Baroda, highlighted that the rate hike reflects individual banks’ asset liability management strategies and growth expectations rather than a systemic liquidity issue.

SBI’s deposits saw an 11.13% year-on-year growth, reaching Rs 49.16 trillion by March 2024, while advances grew by 15.24%. For FY25, SBI aims for a 12-13% growth in deposits and 14-16% growth in advances. Industry-wide, credit offtake grew by 20.2% and deposits by 13.5% in FY24, with a moderated continuation expected in FY25, according to SBI analysts.

In April 2024, RBI Deputy Governor J Swaminathan noted the persistent gap between deposit and credit growth rates, prompting banks to actively mobilize deposits. Customers have become more price-sensitive, shifting towards term deposits and away from current and savings accounts (CASA).

For SBI, the CASA share in total deposits stood at 41.11% as of March 31, 2024, down from 43.8% a year earlier, although it had increased to over 41.11% by December 2023.

The BOI official also pointed out that many banks are operating with a credit deposit (C/D) ratio near 80%, with strong credit demand expected to continue. This drives banks to intensify resource mobilization efforts, even in the typically quieter first quarter of the financial year.

RBI data showed the banking system’s C/D ratio at 79.5% in mid-April 2024, up from around 75.4% a year earlier. For SBI, the C/D ratio was 68.34% at the end of FY24, up from 65.28% a year before. Despite having room to grow with current resources, SBI is preparing for increased credit demand for both capital expenditure and retail needs.

Jhumpa Lahiri

Jhumpa Lahiri

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