India’s largest lender State Bank of India (SBI) has increased the interest rate by 1% or 100 basis points for bulk deposits Rs.1 crore and above. This change will be effective from November 30. Following this revision, the interest rate for bulk deposits over Rs.1 crore for a period of at least one year stood at 5.25%. For senior citizens, an additional 0.50% is offered as the interest rate.
For deposits less than Rs.1 crore, there is no change in the rate offered by SBI. At the beginning of this month, SBI hiked the interest rate of these deposits by 25 basis points. SBI has hiked the interest rate mainly to remain competitive with other banks in the country. Despite the hike, the interest rate offered by SBI is still lower than many of its peers in the market.
According to SBI’s deputy managing director for global markets C Venkat Nageswar, this move by the bank was mainly for arbitrage opportunities. He denied any liquidity issue in the bank at the moment.
Since bulk deposits do not form the main part of SBI’s holdings, many analysts said that this rate hike will not have a major impact on the bank’s lending rates or cost of funds. As of now, bulk deposits form about 6% of SBI’s total deposit liabilities.
The interest rate is amongst the lowest for savings deposit accounts in banks all over the country. Many banks have even slashed the interest rate for savings accounts in the recent times in order to promote other forms of investment among customers. Moreover, banks are also spending a considerable amount of money in maintaining savings accounts for customers.
In August, SBI lowered the interest by 50 basis points for savings accounts less than Rs.1 crore. As of now, SBI offers about 3.5% for savings account deposits below Rs.1 crore.
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