State Bank of India revised upwards interest rates on deposits of two years and more

India's largest bank State Bank of India revised upwards interest rates on deposits of two years and more with effect from June 1. The deposits for the duration - two years to less than three years will now earn an interest of 8.75 per cent. Also, interest rate on deposits of three years to less than five years has been increased to 8.85 per cent from 8.5 per cent. Interest rates on deposits of five years and up to 10 years will be 9 per cent as against 8.5 per cent at present.

For senior citizens, the deposit of two years and up to 10 years has been bifurcated into two categories of deposits of three years to less than five years and 5 years to 10 years. The interest rates on the new buckets will be 9.35 per cent and 9.5 per cent as against 9 per cent earlier. Interest rates on senior citizen deposits of one year to less than two years will continue to be 9.25 per cent.

The counter-intuitive move to offer higher deposit rates, and crunch its spreads in times of dormant credit off take and rising inflation was not expected at this moment. However, long term loans are seeing growth as there is demand of loans from infrastructure projects, and to manage these, the bank may have hiked deposit rates.

However, SBI says that their move to raise rates is to realign them with that offered by the peers. Besides, the bank is looking at raising long term loans in the early part of the year in order to reduce any pressure on deposit mobilisation at the end of the year. It may also be recalled that SBI had decided to increase its market share in deposit market by 0.25% every quarter.