SBI cuts deposit rate, others may not follow

A day after it reduced home and auto loan rates by 25-50 basis points (bps), or a quarter-to-half percentage point, the State Bank of India (SBI), the country’s largest bank, on Thursday cut its term deposit rate for the five-years-and-above tenure by 25 bps to 8.50% a year.

But don’t expect other lenders to follow just yet, said experts.
In fact, Punjab National Bank, the third-largest lender in the country, raised its deposit rate for one-year tenure by 25 bps to 9% on the same day.

At the bankers’ meet after the Reserve Bank of India’s announcement of a 1% reduction in the statutory liquidity ratio (SLR) on Tuesday, SBI chairman Pratip Chaudhuri had hinted at a possible reduction in retail lending rates. The SLR reduction will free up `10,000 crore liquidity for SBI, he had said.

However, Housing Development Finance Corporation (HDFC), which is SBI’s closest competitor in the home loan market, does not plan to introduce any lending rate cut in the near future. “Banks have received the SLR benefit, not us. They have not reduced the lending rates for corporates, of which, even HDFC is one. So, for us to lend below the current rate would difficult,” said a source.
SBI attributed the deposit rate cut to asset liability management, or the need to keep a balance between the deposit and loan rates — if deposit rates stay high and loan rates fall, the bank’s profitability suffers.

The reduction is thus likely to have minimal impact on its margins.
P Pradeep Kumar, deputy managing director & group executive (global markets), SBI ruled out a reduction in the base rate saying interest cost has to come down before it can do so.
All rate revisions will be applicable from August 7, SBI said in a statement.

The effective rate on new car loans will now be 10.75%, with an equated monthly instalment of `1,699 per month. Home loans up to `30 lakh will be priced at 10.25%, while loans above `30 lakh will be priced at 10.40%.

“In home loans and auto loans, there has been a slight downturn and the growth has not been that robust. In home and auto loans portfolio now we are looking at a growth of at least 15%,” said Atanu Sen, deputy managing director and chief credit & risk officer, SBI.

In the quarter ended June, SBI saw its home loan portfolio grow 10% to `1.05 lakh crore. Its auto loan portfolio stands at about Rs20,000 crore, said Sen.

Experts, meanwhile, raised questions over SBI’s pricing of all home loans above `30 lakh at 10.40%. Typically, banks charge higher rates for loans in higher brackets.