SBI cuts interest rates by 0.25% on deposits of 5 years and more

MUMBAI: State Bank of India (SBI) has cut interest rates on five year deposits giving hopes to borrowers that there could be a cut in rates in months come.

The bank has lower interest rate by 25 basis points to 8.5%. rates on deposits above 5 years. Earlier the bank offered 8.75% on retail deposits and 9% on deposits of Rs 1 crore and above.

Contrary to this SBI, Delhi based Punjab National Bank has increase interest rate on one year term deposit by 25 bps to 9%. While SBI new rate would be effective from August 7, PNB's new rate will be effective from August 2.

On Tuesday SBI announced a reduction in interest rates on home loans and auto loans after RBI lowered mandatory holding requirement for government securities to 23% from 24% earlier. However the bank has refrained from lowering its base rate which stands at 10%.

A reduction in SLR holding would theoretically mean that the bank can lend close to Rs 10000 crore to their customers rather than investing the same money in g-sec. "The impact on the margin on account of reduction in retail rates would be minimal. Government securities give us a return of 8% while returns on retail loans are over the g-sec rate," said Atanu Sen, deputy managing director of SBI.

SBI has a home loan portfolio of over Rs 1 lakh crore and an auto loan portfolio of rs 19,000 crore. It has a market share (including banks and home loan companies) of 17% on home loans. Following the cut in the rates, SBI home loan rate would be most competitive among all home loan providers. It will offer 10.25% on loan upto Rs 30 lakhs and 10.40% for loans above Rs 30 lakhs.