Your deposits in SBI will earn more interest | india | Hindustan Times
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Your deposits in SBI will earn more interest

In a positive signal to those who save, the State Bank of India (SBI), India’s largest commercial bank, will raise interest rates on domestic term deposits, reports BS Srinivasalu Reddy.

india Updated: May 27, 2008 02:47 IST
BS Srinivasalu Reddy

In a positive signal to those who save, the State Bank of India (SBI), India’s largest commercial bank, will raise interest rates on domestic term deposits. Beginning June 1, 2008, the bank will hike interest rates on deposits, with maturity period of two years and above, by 0.25-0.50 per cent.

The move is likely to benefit depositors as they will get a slightly higher interest return in the long-run at a time when inflation is likely to get higher and push up interest rates across the board. However, investment analysts feel that the bank deposit rates will cross 10 per cent mark in three to six months time.

In the new rates, deposits with a maturity period of two years to less than three years, will get a return of 8.75 per cent (up 0.25 %), three years to less than five years will get 8.50 per cent (up 0.35 %), and deposits of above five years will earn 9 per cent (up 0.50 %). Senior citizens, who got 0.50 per cent higher interest rate on deposits of more than two years, will now get them on deposits of over three years’ maturity.

Other public sector banks are waiting. “There is ample money with banks,” said B. Sambamurthy, CMD, Corporation Bank. “We will wait and watch.”

With inflation at a high of 7.82 per cent, real returns from bank deposits are very low.

Real returns are the inflation adjusted returns (if the returns deposits can fetch is 8 per cent per annum, at present level the real return will only be 0.28 per cent). This is because a rupee that can buy 100 units of something today, would be in a position to buy only 92 units after a year due to inflation.

"This is only a psychological booster," said Ashish Kapur, CEO, Invest Shoppe India. "If one were to calculate tax commitments the real returns could even be negative."

The recent upward revision in inflation figures of March 2008 suggest that the present figures too may get revised soon. Adding fuel to the fire, on the anvil are petrol, diesel and LPG price rises, that will give another boost to inflation.

"Considering recent revision of inflation figures, the inflation rate is expected to shoot beyond 10 per cent level, in turn pushing up rates across the board," said S. Sundararajan of Mumbai-based Trendy Investments, a financial advisory firm. "So, investors could seek above 10 per cent returns from this source in three to six months' time."

However, the present hike in bank deposit rates makes long-term bank deposits more attractive than deposits under small savings schemes (8 per cent) and public provident fund (8.5 per cent with a 15 year lock-in period).