New Delhi: The State Bank of India (SBI) has cut its deposit rates by 25 basis points (100 basis points = 1%) across all tenures, effective from October 5. This could lead to a reduction in lending rates in near-term. With this, the maximum interest rate offered by SBI on the term deposit between 8 years and 10 years has come down to 7.75%. This is the ninth cut in the deposit rates by the bank since March this year. During this period, the interest rate on 15-45 days deposit has been cut by 150 basis points to 2.75%, which is even lower than 3.5% interest rates on savings account. A senior bank official said the short tenure rate cut is mainly for companies, which park their current account funds in this instrument. The interest rate on current account is zero. The interest rate on term deposit of two to three years has been cut by 175 basis points since January to 7%. The interest rate on a specific tenure of 1,000 days has been cut by 200 basis points to 7% since March. The official said deposit rates have been reduced to bring down the cost of fund so that the bank can further lower the lending rates soon. Since March 2009, SBI has reduced its prime lending rate (PLR) only once in June by 0.5 percentage point to 11.75%. However, the official argued that though the bank did not cut the PLR, it brought down home loan, education loan and auto loan rates. This has, however, benefited only the new customers, while the old customers continue to pay high interest rates on their loans, which are linked with the PLR. A source said as the cost of old deposits continues to be high, the bank finds it difficult to pass on benefit of the current low rate to the old borrowers.
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