SBI hikes interest rate by 0.25% on deposits of 3-5 yrs

In a surprise move, country's largest bank SBI today increased interest rates on select fixed deposits by 0.25%.

In a surprise move, country's largest bank SBI on Saturday increased interest rates on select fixed deposits by 0.25%.

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Deposits under Rs 15 lakh for a period of three years but less than five years will fetch an interest rate of 9%, up from 8.75%, State Bank of India (SBI) said in a statement issued.

The revised interest rate will be applicable from July 1, it said.

The move, which is likely to trim SBI's profits, comes as a surprise because the bank had earlier this month cut deposit rates by 0.25% in select maturities. This followed the Reserve Bank's cut in lending rates by 0.5% in April and a cumulative cut in cash reserve requirements to the tune of 1.25% this year.

A hike in interest rate by SBI is surprising also because it followed a cut of 0.20% in base rate by private lender HDFC Bank on Friday.

Bankers are of the opinion that lowering lending rates, which can help boost sagging growth as well as credit pick-up, is possible only if they are able to rein in deposit rates which continue to be elevated due to competition and slowdown in deposit growth.