SBI hiked deposit rates by up to 50 basis points (bps), for specific tenures below Rs 2 crore, along with several other banks. Why are banks raising FD rates?
Public sector lender State Bank of India (SBI) has hiked the deposit rates by up to 50 bps with effect from December 27. The revision was done for 5 tenures and the revised interest rate is applicable on fixed deposits below Rs 2 crore. Though RBI kept the repo rate unchanged in the latest MPC meeting on December 8, 2023, four banks have hiked fixed deposit interest rates since then.
SBI has increased interest rates by 50 basis points (bps) on fixed deposits maturing in seven to 45 days. These deposits will fetch the depositors 3.5 per cent up from the earlier 3 per cent. Seniors will receive 4 per cent on this tenure. Notable, the senior citizens receive a 50 bps premium over general depositors on all tenures.
The bank increased rates by 25 basis points for fixed deposits of 46 days to 179 days, yielding an interest rate of 4.75 per cent currently.
Deposits maturing between 180 to 210 days, will yield an interest rate of 5.75 per cent, now enhanced by 50 bps. On deposits having tenure ranging from 211 days to less than 1 year, the bank increased rates by 25 basis points, now yielding 6 per cent. Seniors will receive 6.5 per cent. The bank also raised its interest rates on term deposits within the three to five-year tenure, by 25 bps to 6.75 per cent. The interest rates on all other tenures were left unchanged.
SBI maintained the interest rates on fixed deposits in other tenures unchanged. For tenures between one to less than two years the interest is at 6.8 per cent.
For tenure from two to less than three years, the bank is giving its highest interest rate at 7 per cent to general depositors and 7.5 per cent to senior citizens. For deposits having tenure from five to up to 10 years the interest provided is 6.5 per cent. For a special tenure deposit scheme named "Amrit Kalash," of 400 days, the bank offers 7.10 per cent to general depositors and 7.60 per cent to senior citizens.
Further, the bank has implemented a hike in interest rates on domestic bulk deposits, those amounting to Rs 2 crore and above, by up to 50 bps effective from December 27.
The Reserve Bank of India (RBI) kept the key repo rate at 6.5 per cent for a fifth consecutive MPC meeting that concluded on December 8, 2023. Since then SBI became the fifth bank to increase term deposit rates, joining the line of Bank of India, Federal Bank, Kotak Mahindra Bank, and DCB Bank.
Between May 2022 and February 2023, the RBI hiked the repo rate by 2.5 per cent to control inflation. The banks swiftly raised lending rates, particularly on EBLR-linked home loans, by 2.5 per cent. Yet, they didn't hike deposit rates by 2.5 per cent. The withdrawal of Rs 2,000 notes in May 2023 improved bank liquidity, reducing the need to raise deposit rates to attract funds. But on October 26, 2023, the RBI raised the non-callable term deposit limit to Rs 1 crore from Rs 15 lakh, and so banks lost the option to lock a substantial amount of funds. This move forces banks to raise rates on FDs to attract more funds.