On 1-year deposits, customers will now earn 6.40 percent, as against 6.25 percent earlier, while those desposits maturing between two years and 10 years will earn 6.50 percent, compared with 6 percent earlier. Interestingly, SBI's deposit rate hike came a day after the new US Federal Reserve chairman, Jerome Powell, indicated that the Fed might go in for three interest rate hikes this year.
Deposits for 7- 45 days will earn an annual interest rate of 5.75 per cent, up from 5.25 per cent earlier. Deposits which mature between two to 10 years will amount to 6.50 per cent rate, a hike of 0.50 percentage points.
The increase in lending rates comes at a time when the economy is showing signs of revival. Mr. Gupta said that since the lender has hiked both the deposit and lending rates, the impact on margins will not be significant. The recent Union Budget had given retired investors a major incentive for choosing fixed deposits, as it increased the interest income limit for tax deduction at source to Rs 50,000 from Rs 10,000 earlier. If you just look at the commercial paper and certificate of deposit rate, you have seen a movement of 100 bps.
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For instance, SBI has seven tenors - overnight, one month, 3, 6, 12, 24 and 36 months.
Banks are likely to raise interest rates to increase their profitability. In home loans, one-year MCLR or the benchmark lending rate is applicable. "However, other majors may follow the trend and increase deposit rates, but it will also depend on their liquidity situation", said Pritesh Bumb, an analyst at Prabhudas Lilladher Pvt. Ltd.
Loans over Rs 75 lakh will carry an interest rate of 8.75%. The bank prior offered a loan cost that was 50bps lower at 6.25%. "As far as lending rates are concerned, there is gradual recognition that external conditions such as inflation from oil and possibly from food till the monsoons may push the interest rates up", said Ashvin Parekh, managing partner, Ashvin Parekh Advisory Services Llp.