State Bank Of India: hikes rates on bulk senior citizen deposits by 50-140 bps

Two days ahead of the Union Budget, State Bank of India (SBI) has raised the interest rates offered on bulk deposits above Rs 1 crore by 50-140 basis points, indicating the possibility of a spike in interest rates in the banking system.

While the hike has come a week before the Reserve Bank of India is to announce monetary policy, it has not made any changes in the deposit rates offered to retail investors. The rise in bond yields and the bulk deposit rates has spurred expectations that the Reserve Bank will tighten rates and the government will go for a wider deficit.

The bank would offer 6.25 per cent on bulk deposits for one year, a rise of 100 basis points, with immediate effect. The bank has sharply raised rates for 46-210 days by 140 basis points from 4.85 per cent from 6.25 per cent. With this, bulk deposit rates have been aligned with the retail rates below Rs one crore. It will offer 5.25 per cent for deposits between seven days to 46 days, a hike of 50 basis points. It would offer 6.25 per cent for all deposits in the range of 46 days to 2 years and 6 per cent for deposits between two years to 10 years.

The hike in bulk deposit rates has coincided with the rise in yields of government securities amid fears that the government is likely to breach the fiscal deficit target of 3.2 per cent for FY-18. On Monday, the 6.79 percent 10-year bond yield rose by 15 basis points to 7.63 per cent, while the recently unveiled 7.17 per cent 10-year bond yield was up 13 bps at 7.44 per cent.