State Bank of India cuts deposit rates by 25-50 bps

State Bank of India, the country's largest lender has cut its deposit rates by 25 to 50 basis points for deposits below Rs1 crore ($200,000), effective Monday.

The bank had already announced a downward revision in interest rates for deposits below Rs1 crore with effect from 9 March and for deposits above Rs1 crore with effect from 19 March.

The bank also reduced its base prime lending rate (State Bank Advance Rate) with effect from 1 January 2009.

With the system flush with liquidity, banks are discouraging bulk deposits by slashing interest rates. Banks are offering as low as 5 per cent on one year bulk deposits.

State-run Punjab National Bank (PNB) has lowered bulk deposit rates from 6.5 per cent to 5 per cent per annum and is only paying 1 per cent on a seven-day deposit.

In January, Indian Banks' Association (IBA) had set a uniform rate of 7.5 per cent on bulk deposits for public sector banks but with rise in liquidity banks are reducing the rates. Banks are setting their own deposit rates  depending on the liquidity needs.

However, during the last week of March 2009, bulk deposit rate had touched 8 per cent levels because of pressure of meeting deposit targets for the fiscal. Rates have since declined.