SBI may raise saving deposit rate by up to 125 basis points

Mumbai: India's largest lender State Bank of India (SBI) today indicated that it could increase interest rate on savings bank accounts by up to 1.25 per cent in view of competition following freeing of such rates by RBI.

"On an average...we are expecting 100-125 basis points increase in the funding cost of savings bank," SBI Chairman Pratip Chaudhuri said.

Earlier this week, the Reserve Bank had deregulated the savings bank deposit interest rate with immediate effect giving banks freedom to determine their own rates.

[caption id="attachment_118697" align="alignleft" width="380" caption="A hike in savings bank deposit rates has become inevitable, states chairman of State Bank of India.. Reuters"][/caption]

Immediately after the announcement, private sector Yes Bank, a relatively small player, had raised savings rate by 200 basis points to 6 percent.

Banks now offers 4 percent on savings bank accounts. When asked about the impact of RBI decision on deregulation, Chaudhuri told CNBC-TV18 in an interview, "I think that's (rise in interest rate on savings bank) going to be inevitable. We are prepared for some pressure on the cost of saving bank funding."

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He, however, said, "We would not be the first mover," adding that SBI will not be too worried as it has 34 percent of its total deposits in saving bank accounts on account of is wide distribution network. "We will have to see how other banks play it out and then we will take appropriate policy action," he added.

By freeing the savings bank deposit rates, RBI has demolished the last bastion of the regulated interest rate regime. As part of the economic reforms programme, the Reserve Bank of India (RBI) had earlier given freedom to banks to determine fixed deposit rates, depending on their asset-liability positions.

PTI