SBI catching up in FD sweepstakes

Fixed deposits (FDs) seem to be on the priority list for the State Bank of India, the country’s largest lender. This is borne out by the fact that the bank is increasing its rates and is keen to pull off a growth figure of at least 25% in 2012-13 fiscal.  

“We want to achieve a growth of at least 25-26% in fixed deposits in FY13 compared with a growth of roughly 20% in FY12,” said A Krishna Kumar, managing director and group executive (national banking).

It was only last month that SBI raised FD rates on select maturities by up to 25-100 basis points (bps) amid tightness in liquidity conditions. The ones with a maturity period of 7-90 days will now earn an 8% interest against the previous rate of 7%. Interest rates on 91-179 days and 181-240 days of FDs have gone up by 75 bps and 100 bps, respectively, to 8%. The corresponding figure for 241-day to 1-year deposits now stands at 8%, up 25 bps.

Analysts see it as a smart move.

 “We believe that SBI’s recent 25-100-basis point deposit rate increase is a smart and targeted response to the recent competitive activity in the savings bank market by disruptive competitors (Kotak, IndusInd and Yes Bank). The bank has raised deposit rates across maturity buckets of less than one year, which account for a large proportion of the deposit base of attackers,” said Anish Tawakley, Jatin Mamtani and Nikhil Poddar of Barclays Equity Research in a report released on March 30.

Sample these numbers.
According to the report, SBI finds itself catapulted to the top slot in the 7-90 day bucket, which was way behind at a measly 9%. This is where Kotak, IndusInd and Yes Bank raise a significant part of their deposits at 26%, 29% and 39%, respectively.

Since SBI’s short-term deposit base is relatively small, there is little impact seen on its profitability — less than 5 basis points first order net interest margin (NIM) impact. What’s more, the rate increases are in line with the bank’s earlier stated intent to move its liability profile to the short end in a falling interest rate scenario, added the Barclays report.

An official of SBI, who did not wish to be named, said the increased fixed deposit rates will benefit the bank by widening its customer base. “But the high rates will not impact the NIM because the bank will adjust it in lending rates in a few places,” he added.

For the nine months ended December 31, 2011, domestic NIM was at an all-time high of 4.12%, recording a growth of 40 bps over nine months ended December 31, 2010.

NIM is the difference between interest earned and interest paid as a percentage of the bank’s assets in a given period.

As on December 31, 2011, retail term deposits of the bank stood at Rs3,88,144 crore, registering a growth of 18.86% yoy.

Meanwhile, SBI chairman Pratip Chaudhari said on Thursday that the lender aims to post a credit growth of 19-20% this fiscal compared with 18-20% in the last. It had reduced its credit growth target to 16-19% from 19-22% projected at the beginning of the year mainly due to lack of demand from corporates.