SBI raises its lending, fixed deposit rates

BPLR up 50 bps, deposit rate by 150 bps

While the increase in benchmark prime lending rate to 12.25 per cent will make existing home, auto and corporate loans from the country’s biggest lender dearer, the hike in deposit rates will ensure better returns for deposit-holders.

The decision comes days after Finance Minister Pranab Mukherjee expressed hope that lenders will not raise their interest rates in response to the RBI’s monetary tightening measures last month.

“The bank has revised the benchmark prime lending rate upwards by 50 basis points from 11.75 per cent to 12.25 per cent effective from August 17,” SBI said a filing to Bombay Stock Exchange.

However, for new borrowers, the base rate, which became effective from July 1 this year, stands at 7.5 per cent. The base rate is the minimum lending rate below which loans cannot be offered.

As far as revision in fixed deposit rates is concerned, SBI increased the interest rate by 150 basis points (1.5 per cent) to 4 per cent for term deposits of 15-45 days’ tenor. The deposit rate increase is the maximum in this slab.

For fixed deposits with a tenor between 181 days and less than one year, the new interest rate will be 6 per cent against the existing 5.25 per cent, while 555-day fixed deposits will attract an interest rate of 7.25 per cent, an increase of 125 basis points. The interest rate on term deposits of between 3 to 5 years’ tenor will go up by 75 basis points to 7.25 per cent from tomorrow, while interest on the 5-8 years’ maturity slab has been increased by 25 bps to 7.50 per cent.

Floating fixed deposit

Meanwhile, the bank also announced the launch of a floating fixed deposit product linked to base rates with effect from September 6, 2010. “The bank announced launching of floating rate term deposit products linked to the ‘Base Rate’ effective from September 6, 2010,” the bank said in a filing.

This innovative deposit product will not carry a fixed rate, unlike the existing fixed deposit product.  The interest rate would change in tandem with the base rate, as and when a revision in the benchmark rate takes place.

For a one-year floating fixed deposit, the interest rate will be 50 basis points lower than the existing base rate, which is currently 7.5 per cent, it said. In the case of a three-year floating term deposit, the interest rate will be 25 basis points lower than the base rate, while for a five-year floating term deposit, the interest rate will be at par with the base rate.

The new deposit product will be introduced from September 16, it said.  The RBI, in its monetary review last month, raised the short-term borrowing (reverse repo) rate by 50 basis points and lending (repo) rate by 25 basis points to tame inflation.

Following the monetary action, most of the public sector lenders, including Punjab National Bank, Bank of Baroda, Bank of India, Oriental Bank of Commerce and Canara Bank, responded by hiking their BPLRs by up to 50 basis points. At the same time, many banks increased deposit rates as well.