SBI reduces FD rates by 40bps, RBI stops sale of 7.75% bond

State Bank of India (SBI) has reduced interest rate on its term deposits of most maturities by 40 basis points...Read More
MUMBAI: State Bank of India (SBI) has reduced interest rate on its term deposits of most maturities by 40 basis points (100bps = 1 percentage point). Following the revision, the highest return offered by the bank is 5.4% on deposits of over five years. On bulk deposits, SBI has reduced returns by half a percentage point.

According to the bank’s website, it will now offer 2.9% on deposits of up to 45 days, 3.9% up to 179 days, 4.4% up to one year, and 5.1% for deposits of up to three years. Senior citizens will, however, receive half a percentage point higher return on their deposits. The new rates are effective from Wednesday. With SBI bringing down its deposit rates, most other public sector banks are expected to follow suit.

Those who place deposits of over Rs 2 crore with the bank will receive only 3% for above 2 years. Deposits below two years will receive 2.9% across all maturities. With over Rs 1 lakh crore of surplus liquidity, the bank is offering a negative return on bulk deposits (after adjusting for inflation).

Meanwhile, the Reserve Bank of India has said that it will stop selling the 7.75% Savings (Taxable) Bonds, 2018 with effect from the close of banking business on Thursday — May 28, 2020. This follows a government notification on Wednesday for the discontinuation of the scheme. These bonds, which are sold by banks to retail investors, have a tenure of 7 years but can be encashed prematurely by senior citizens.

SBI’s steep cut in FD rates follows an equivalent reduction in the repo rate by the central bank last week. Since all retail loans are now linked to an external benchmark — the RBI repo rate — the bank’s loans become cheaper by 40bps on their next reset.

For corporate borrowers, the cost of loans depends upon a formula based on the marginal cost of funds-based lending rate (MCLR). Last week, SBI chairman Rajnish Kumar had said that the MCLR will be reset in early June.