The country's largest lender State Bank of India has announced a cut in interest rates on fixed deposits of select maturities. The 0.25 per cent rate cut will be effective from December 8 and it is applicable on retail deposits (below Rs 1 crore).
Accordingly, fixed deposits of maturity between 1 year and less than 3 years will fetch 8.5 per cent as compared to earlier rate of 8.75 per cent. Similarly, the rates on fixed deposits between 3 years and 5 years will fetch 8.5 per cent.
The rates on more deposits of more than five years of maturity period will be 8.25 per cent, from 8.5 per cent earlier.
Last month, SBI had lowered rates on deposits on 7-45 day retail deposits.
The country's two largest private sector banks by assets - ICICI Bank and HDFC Bank - have recently lowered their interest rate on fixed deposits.
Ashish Parthasarathy, treasurer at HDFC Bank, said that banks are seeing a rise in fixed deposits but the credit offtake remains weak.
The deposit growth in the Indian banking system has been growing by three to five percentage points more than credit growth throughout this fiscal, leaving banks to struggle with excess liquidity and also forcing them to slash fixed deposit rates.
Credit offtake has been slow as corporates are yet to kick-start investments in a big way. For example, bank credit rose 11.17 per cent to Rs 62,72,621 crore in the fortnight ended October 31. The demand deposits had risen 14 per cent to Rs 7,40,675 crore in the fortnight ended November 15 as against Rs 6,48,319 crore in the year-ago period. Recently, Finance Minister Arun Jaitley had also voiced concern over the weak credit growth.
Despite lowering deposit rates, banks have not cut their base rate, or the minimum rate below which banks are not permitted to lend. The RBI Governor Raghuram Rajan after announcement of monetary policy on December 2 said that banks are not passing on lower rates in the financial system.
However, banks have hinted at lowering of lending rates in the future with the RBI expected to ease monetary policy early next year. HDFC Bank Managing Director Aditya Puri said: "If it doesn't pick up, and there is a lowering of deposit rates, you can possibly see some reduction on the asset rates."
(With Agency Inputs)
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