Rate hike: SBI hikes retail deposit rates for second time in 2 months

State Bank of India (SBI) has hiked interest rates on retail deposits of some maturities for the second time in as many months. The rate hikes come a week after the monetary policy committee (MPC) voted to keep key rates unchanged to allow the economic recovery to gain strength.

For deposits with balances of less than Rs 2 crore, SBI will now pay 5.2% per annum in the two-to-three-year bucket, up from 5.1%. Deposits maturing in three years to less than five years will now yield 5.45%, up from 5.3% earlier, and those maturing in five to 10 years will earn 5.5%, as against 5.4% earlier.

HDFC Bank has also made a small hike of five basis points (bps) in the three-year-to-five-year bucket, taking the rate to 5.45%. In January, most large lenders and a few mid-sized ones had raised deposit rates, but both bankers and analysts attributed those changes to technical adjustments necessitated by banks’ asset liability management (ALM) requirements.

Bankers said that the rate adjustments are also somewhat technical in nature, as lenders need to adjust their asset liability management (ALM) positions in keeping with regulatory norms.

The rise in deposit rates is driven in part by an improvement in credit demand. According to latest data from the Reserve Bank of India (RBI), non-food credit and bank deposits grew at an almost identical pace of 8.3% year-on-year (y-o-y) during the fortnight ended January 28.

At the same time, the abundance of system liquidity remains an overhang on any meaningful movement in deposit rates. Karan Gupta, director, India Ratings and Research, said, “Banks continue to accrue deposits at a very healthy pace. Credit growth, while improving, is still not back to double-digit levels. So as and when these things change and banks start to see that liquidity is declining, that is when the pace in deposit rate hikes is likely to pick up.” Gupta expects rate hikes to be small in the next three to four months.

Other analysts pointed to the fact that large banks typically see faster credit growth than the system. So a series of rate hikes could suggest that they are preparing for an improvement in credit demand.

To be sure, some large lenders like Bank of Baroda (BoB) have chosen to keep a tighter grip on margins and are therefore keeping term deposit rates unchanged. Sanjiv Chadha, MD & CEO, told FE earlier this month that the bank has focused on growing its current account savings account (CASA) portfolio, which rose 12% y-o-y in Q3FY22.

“Even when deposit rates start rising, the book which is low-cost for us now is significantly higher now than where it was two years back. From 37% it has risen to over 44%. Therefore, we are in a reasonable position where we can say that while there may be a secular uptrend in the offing, it may be some time before it gets reflected in elevated deposit costs,” Chadha said.

from Banking & Finance – The Financial Express https://ift.tt/jszEynW