SBI’s FD Interest Rate Cut Decoded

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SBI’s FD Interest Rate Cut Decoded
Rajat Mishra - 28 May 2020

The Reserve Bank of India has announced a raft of measures ranging from a 40bps cut in repo rate, bringing it down to 4 per cent, to a steep cut in reverse repo rate. And with these steps, all other banks are expected to cut interest rates on deposits and on FDs. India’s largest lender State Bank of India has cut interest rate on one-year deposits by 40 bps to 5.1 per cent. This is also one of the lowest since 2003. That is not good news for depositors.

This cut by the SBI is the second one in this month. On May 12, SBI had slashed the interest rate on term deposits for up to three years tenor by 20bps. SBI latest FD rates are effective from May 27. People having FDs of 7 days to 45 days will fetch 2.9 per cent, for 46 days to 179 days 3.9 per cent, over 5 to 10 years will fetch 5.4 per cent. However, for senior citizens the FD for 7 days to 45 days will fetch an interest rate of 3.4 per cent, for 46 days to 179 days will fetch 4.4 per cent and 5 years to 10 years will fetch 6.2 per cent.

Other banks are offering a little higher interest rates. HDFC Bank is offering 5.6 per cent on one year FD, Bank of Baroda is offering 5.55 per cent and ICICI Bank is also offering 5.55 per cent. Now, following the footsteps of SBI, all other banks will also go for interest rate cuts.

Despite falling interest rates, the banks are witnessing a steady growth in the deposits. And the banks are registering a deposit growth at 10-10.5 per cent year on year. The reason for rising deposits in banks can be attributed to one thing that is less spending. And thus people are parking surplus money with the banks.

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