INDIA BUSINESS WORLD - JANUARY 1^st - JANUARY 15^th - 2008

SBI HIKES DEPOSIT RATES, A MONTH AFTER LOWERING THEM

Government-Owned State Bank of India (SBI) has raised it deposit rates, barely a month after lowering them. The country's largest bank in terms of assets, hiked deposit rates by 25 to 50 basis points for different slabs and by 100 basis points for six months.

The bank will now offer 7.5% for deposits of 181 days against 6.5% offered earlier. It will offer 8.75% for deposits of one to two years against 8.25% earlier. Also, SBI has done away with the 550 days slab which offered 8.5% - the highest rate offered by the bank. Now, it will offer 8.5% for deposits of two to 10 years, as against 8.25% for three to 10 years earlier.

It may be recalled that SBI had cut its deposit rates by 25 to 50 basis points on December 12, a day after the US Fed Reserve lowered its key policy rate.

Industry sources say that SBI's move may put other banks in a spot since there is ample of liquidity in the system.

Bankers say that SBI may have hiked rates to meet the redemption demand for the last quarter. Last year, a number of banks raised bulk deposits at higher rates which would be due for payment before March. Further, this year stateowned banks are under pressure to raise core deposits - a parameter added by the finance ministry to judge their performance. This too would have prompted the bank to raise its retail deposits rates, bankers say.

This year, more and more banks are focusing on raising deposits from the retail market rather than entering into a war with other banks to garner resources.

However, senior SBI officials deny this stating the move was only an ALM exercise. "We decided to do away with 550 days slab to attract deposits in one to two year slab. But there is no pressure on SBI with regards to redemption of deposits due in near future."

However, other banks don't see a need to tweak their rates. Said PNB chairman and managing director KC Chakrabarty: "We are offering marketrelated rates. We have no plans to make any changes." Allahabad Bank CMD AC Mahajan also held a similar view: "Given the level of liquidity in the system, we do not find any immediate need to increase interest rates on deposits."