The country’s largest lender State Bank has slashed the interest rate on savings bank deposits by a hefty 25-50 bps to 2.5% from the existing 2.7%, the lowest on record. The rate reduction for the deposits is a disincentive for the small savers. The decision comes within days of the bank passing on the 50 bps repo rate cut by the central bank to borrowers effective June 15.
SBI’s savings bank deposits rate of 2.5% will be application on all account balances. Prior to this, it was offering 2.7% on account balances below `10 crore, and 3% on balances of `10 crore and above. Its rivals HDFC Bank and ICICI Bank offer savings account rate of 2.75%. HDFC Bank and ICICI Bank have so far lowered their interest rates on fixed deposits below `3 crore by 25 bps.
SBI has also lowered its pricing on fixed deposits in the 25-50 bps range. The move comes as the banks in general has been facing pressure on margins since the pandemic when public began to park their monies in other assets and in bank deposits, forcing banks to offer higher prices to fixed deposits.
System wide, NIM, or the net interest margin, a key profitability metrics for banks, declined to 2.99% in Q4FY25 from 3.20% in Q4FY24, down 21. For state-run banks it declined by over 25 bps year-on-year due to increased exposure to low-yield loans and loan repricing at lower rates after the RBI rate cuts and also the falling Casa rates.
Ratings agency Care sees the same will be falling again this fiscal to the tune of 20-25 bps over FY25 due to a declining interest rate scenario, with yield on advances expected to fall higher than the cost of deposits in FY26. For SBI, the whole bank NIM was 3%, and the domestic NIM was 3.15%, down by 32 bps year-over-year. On the other hand SBI's the low-cost Casa (current account savings account) ratio was 39.97%, down from 41.11% in Q4FY24 and 39.20% in Q3FY25. As against this, system wide, Casa ratio in Q4FY25 stood at 40.17%, down from 40.77% in Q4FY24 primarily due to a stronger growth in term deposits and competition for attracting deposits. Yet banks together grew their deposits 7% -on-year in Q4FY25.
SBI’s moves—to reduce pricing on SB deposits and also fixed deposits--which controls a fifth of the system-wide assets and liabilities, will hit impact depositors, especially senior citizens who are dependent on interest earned from funds parked with banks-- is an industry first as no other lender has tweaked the savings bank rate so far even though they have lowered the interest rates on repo-linked loans.
The bank has also reduced its interest rates on fixed deposits below Rs 3 crore by 25 bps on different maturities, effective June 15. On fixed deposit rates, or retail domestic term deposits, SBI has cut interest rates to 6.05% for the general public on deposits maturing between 211 days and less than one year from 6.3% earlier. It has also revised fixed deposits rate to 6.55% for senior citizens on the same tenor, compared to 6.8% earlier.
For deposits maturing in one year to less than two years, the new rate is 6.25% compared to 6.5% and 6.75% for senior citizens down from 7%.