SBI Hikes Short-Term Deposits' Interest Rate By 50 Basis PointsThe State Bank of India (SBI), India’s largest public sector bank, has decided to hike interest rates on its short-term fixed deposits by 50 basis points. With the biggest increase in recent months, interest on deposits with a tenure of between 1 week and 45 days will increase to 3.5% from 3% earlier; the interest rate on deposits between 180 and 210 days will be at 5.75%; the 400-day Amrit Kalash scheme will have an interest rate of 7.1%; and in the last two cases, senior citizens will receive an interest rate of 4% and 7.6%, respectively.
This is the second-highest return offered by a public sector bank, with Bank of Baroda providing the highest rate of 7.25% on three-year deposits. The new rates will be valid until March 31, 2024. SBI also decided not to increase interest rates in the one-year to less-than-three-year category as well as on deposits above five years, with all other tenures witnessing a 25-basis point hike and half a percentage point more on all deposits for senior citizens.
SBI’s decision to hike the interest rate has come amid concerns regarding the lack of liquidity in the system, with the RBI resuming its ‘withdrawal of accommodation policy stance. As the RBI went for a sharp rate cut in the wake of the pandemic, banks were compelled to reduce their deposit rates to 5.02% in February 2022 from 6.38% in March 2020 before COVID.
Since February 2022, the reversal policy has taken off, with interest rates rising to 6.76% in October 2023. SBI’s decision comes before the government announces interest rates for small savings schemes such as the public provident fund and post office deposits, which have remained flat in the last few quarters as the government refrained from increasing rates.
The government is likely to hold the last rate-setting exercise as the model code of conduct for the general election kicks off in April, with officials claiming that interest rates on schemes such as PPF are beneficial to tax-bound individuals.