Mumbai/Bengaluru, Jul 31: State Bank of India on Monday cut deposit rates on the majority of its savings accounts to a six-year low, just two days ahead of a policy meeting in which the central bank is expected to cut interest rates.
India's largest lender said it would lower deposit rates by 50 basis points on accounts with a balance of 10 million rupees ($155,994.07), although the rate would remain at 4 percent for those with higher amounts.
The lower deposit rate would impact 90 percent of the nearly $150 billion in its savings accounts, SBI said.
The cut, the first by SBI since May 2011, is aimed at protecting its net interest margin as the lender saw large outflow of deposits after India in November removed higher-denomination currency bills from circulation and asked account holders to surrender their de-legitimised cash to banks.
Traders though said the move also likely came in anticipation of a 25-basis-points cut in the repo rate by the Reserve Bank of India at its policy meeting on Wednesday. Banks typically cut deposit rates once the central bank lowers the policy rate.
"This move will result in increasing its net interest margins," said Jimeet Modi, chief executive officer at SAMCO Securities, adding the number was running below its estimate of 2.84 percent for the quarter ended in March.
Shares of SBI rose as much as 4.8 percent to their highest since May 19 after the announcement. They were trading 4.46 percent higher as of 0949 GMT.
Rajnish Kumar, managing director in charge of national banking at SBI, said the decision had been taken at its usual month-end asset-liability meeting.
Bankers however said the timing was unusual, and that it had sparked speculation in the markets that the move was intended to pressure the central bank into delivering a rate cut.
Markets have widely priced in a 25-bps rate cut at Wednesday's meeting, but pressure is growing on the central bank from government officials and analysts to ease further after inflation eased to 1.54 percent in June, its lowest since a new series was adopted five years ago.
"The timing of this wide-across deposit rate cut shows that SBI is trying to give an indication to the RBI that they need to cut rates," said a senior banker at a foreign bank. ($1 = 64.1050 Indian rupees)
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