The State Bank of India has hiked the interest rates on fixed term deposits by up to 25 basis points. The new rate, which is effective from May 28, is applicable on retail deposits below Rs 1 crore. Under the revised rate structure, the deposits for 1 year to 2 years will now accrue 6.65 per cent as against 6.40 per cent earlier. For the senior citizens, the new rate is 7.15 per cent from 6.90 per cent earlier. For the investments from 2 years to 3 years, the interest rate is revised to 6.65 per cent from 6.60 per cent.
There is no change in interest rate for deposits less than one year. Currently, the banks gives 5.75 per cent for deposits under 7 days to 45 days scheme. For 46 days to 179 days, the interest rate is 6.25 per cent with no change. For investment under 211 days to less than year, the rate is fixed at 6.40 per cent. In all these schemes, senior citizens get 50 basis points higher than their non-senior citizen customers.
This is the second time in just three months the largest lender has raised the rates for term deposits. Earlier in February, the SBI had hiked interest rates on its retail deposits - those below Rs 1 crore - by 10-50 basis points. But before that in November last year, the bank had slashed rates by 25 basis points.
There is an inverse relation between credit off-take and fixed deposit rates. When there is little demand for credit, banks reduce deposit rates because they don't need funds and in case the demand is high, banks turn to customers to get more funds to facilitate credit. The SBI's rate hike has come days after the state-run lender reported a record standalone net loss of Rs 7,718 crore in the Jan-March quarter.
The SBI's move may inspire other banks to follow suit on rate hike. Just last month, the largest private sector bank HDFC raised the interest rate for one year deposits from 6.75 per cent to 6.85 per cent. For investments between 2 years to 5 years, the bank hiked rates from 6 per cent 7 per cent