SBI hikes fixed deposit rates by up to 0.50 per cent

India’s largest lender State Bank of India (SBI) announced hike in fixed deposit rates on medium to long term by up to 0.50 per cent. The rates will come into effect from June 1. Last month also SBI had raised fixed deposit rates and the latest move is likely to have a fight on interest rates regime in the banking sector, while the second largest PSU bank PNB said that it would take decision on rates after its Asset Liability Committee (ALCO) meeting.

Statement released by the bank stated the bank has raised interest rates on deposits between two- and 10-year maturities by 0.25-0.50%. Whereas, interest rates on deposits of two year to less than three years has been raised from 8.5-8.75% and that of five years to 10 years will now offer 9%, up from 8.50%. Rates on deposits of three years to less than five years have been increased by 35 basis points to 8.85%. One basis point is a one hundredth of a percentage point. While those on deposits of five years and up to ten years by 0.50 per cent to nine per cent.

Rates on deposits for less than two years have not been changed.

Bank sources said a rise in deposit rates will increase banks’ cost of funds and will increase pressure on their net interest income, which is the difference between the interest earned on loans and interest expended to raise deposits. Whereas public sector banks, led by SBI, had reduced their prime lending rates, or PLR, by 50 basis points in February. PLR is the benchmark rate to which all lending rates of banks are linked.