Excess liquidity prompts banks to cut deposit rates

Public sector lenders like State Bank of India (SBI) and Bank of Baroda have reduced interest on fixed deposits on various maturities from the end of April as the banking system is flush with liquidity.

SBI, the country’s largest lender, reduced the retail term deposit rate (for up to ₹1 crore) by 25-50 basis points (bps) on various maturities. (100 bps = 1 percentage point). For deposits maturing from two years to less than three years, SBI customers will earn 6.25% as compared with 6.75% earlier.

For three years to 10-year deposits, the interest rate will be 6.25% as compared with 6.5%. The new rates came into effect on Saturday. Senior citizens will continue to get 50 bps more over the card rate.

Another public sector lender, Bank of Baroda, reduced the deposit rate by 10-25 bps on various maturities. The one-year deposit rate will now be 6.9% as compared with 7% earlier.

“There is abundant liquidity in the system, which has prompted banks to cut the rates,” said a senior official from Bank of Baroda. According to Reserve Bank of India, the surplus liquidity in the banking system was ₹4.8 lakh crore in March, though it has come down from its peak of ₹8 lakh crore in January.

In early January, banks had reduced the benchmark lending rate — the marginal cost of funds based lending rate — sharply, by about 90 bps. The move followed demonetisation which resulted in significantly high mobilisation of low-cost deposits. However, banks had not reduced deposit rates at the time. Now, banks have not cut their lending rates.

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Printable version | Aug 6, 2020 11:08:27 PM |

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