The State Bank of India, the country’s largest lender, has just slashed interest rates on its fixed deposits (FDs) of less than Rs 2 crore, or retail deposits, as well as the larger deposits across nearly all tenures offered. While deposits of 7 days to 45 days will now earn 75 basis points (bps) less, most of the tenures have seen rates dip by 10-20 bps. The smallest rate cut of 5 bps will apply on the 2-year to less than 3-year tenure. The new interest rates will come into effect from August 1.

On FDs maturing in 46-179 days, the interest rate will come down to 5.75 per cent from the 6.25 per cent applicable since early May. For deposits in the 180-210 days bucket the bank will offer 10 bps less at 6.25 per cent while the 211-364 days bucket will earn 15 bps lower, again at 6.25 per cent and the 1 year to under 2 years tenure will fetch 6.80 per cent from 7 per cent currently. The 3-5 year bucket will earn 10 bps lower at 6.60 per cent.

Bulk deposits, that is amounts of over Rs 2 crore, used to earn a marginally higher interest rate than retail deposits for the longer maturity periods, but now they are at par. In fact, bulk deposits of 1 year to less than 2 years tenure, the only bucket to remain unchanged, will now earn 10 bps less than smaller deposits of the same tenure. The last time the bulk deposit rates were tweaked was in February.

This development comes in the wake of a liquidity surplus in the system and the softening interest rates. In the wake of the RBI’s monetary policy committee (MPC) voting to reduce the repo rate by 25 basis points (bps) to 5.75 per cent in June, for the third time in a row, some of the country’s leading private sector lenders including ICICI Bank, Kotak Mahindra Bank and Axis Bank, had also cut their interest rates on deposits by varying percentages.

According to Care Ratings, the banking system has been in liquidity surplus since end-May – barring June 20 – after being in deficit for seven months. In the week of June 15-19 , “the (net) liquidity surplus was estimated to be over Rs 1.3 lakh crore on each of the 5 days, despite outflows towards GST payments, fortnightly reporting of scheduled commercial banks with RBI and government market borrowings”, read the report.