only to fresh deposits and existing deposits on renewal. The bank also announced a reduction in its deposits with a maturity of over three years to 6.25% from 6.5%. The highest return offered by the bank for general investors is now in the one-year to 455 days category where it offers 6.9%.
The government's move on November 6 to demonetize high value currency notes from the market led to a huge inflow of current account and savings bank deposits. Outlining the rationale behind the move to reduce deposit rates, SBI chief financial officer Anshula Kant told NDTV Profit that post-demonetisation gradually some of the deposits have started to go out of the system and roughly for us about 40 per cent of the deposits have gone out from the bank. "We still have 60 per cent. That is one thing," she said. "We were not very keen to increase the MCLR (marginal cost of funds-based lending rates) at this point. As cost of deposit goes up, it has an upward pressure on the MCLR as well. To maintain MCLR for our borrower customers where it is, we have tweaked the rates in certain longer deposit buckets."
SBI has, however, decided to maintain interest rates for senior citizens on most maturities, including the one-year to the 455-day segment where they will continue to get 7.4 percent —the highest return available earlier. In the two-to-three year segment rates have been reduced for senior citizens by 50 basis points. In deposits above three years, senior citizens will get 25 basis points lower than before.The bank has also not changed its key lending rates. Its one year marginal cost of lending rate (MCLR) stands at 8.00 percent. Most borrowers have their home loans linked to the one-year MCLR. Given that MCLR is linked by a formula to cost of funds it is likely that the benchmark rate too will decline as deposits mature.
As SBI is the largest bank with a market share of close to a fourth of total bank deposits, the reduction in deposit rates could result in other banks following suit.
While announcing results for the December quarter, chairman Arundhati Bhattacharya had said the NIM might decline by five to six bps by end-March.
As for lending rates, after a sharp cut of 90 bps in MCLR across all maturities, the bank has kept this unchanged for four months.
The MCLR regime came into effect from April 1, 2016, replacing the base rate regime. The aim was to improve transmission of policy rate changes by the central bank, as well as transparency in fixing of rates.
It had reduced its base rate by 15 bps to 9.1 per cent and the Benchmark Prime Lending Rate to 13.85 per cent from the earlier 14 per cent.