The hike in the FD rates of SBI might bring a turn in the rate cycle

The State Bank of India (SBI) to increase the one-year deposit rate by 10 basis points (bps) to 5% could be a sign that prices may increase for investors in the coming months. At the same time, bankers say the process will slow down and depend, to a large extent, on the speed of credit growth.

Currently, deposits run at 10-11% annually (YoY), while non-food loan growth decreases by 5-6%. FE Banks spoke to them, saying the banking system and the financial markets see some adjustments in the financial situation after the Reserve Bank of India (RBI) announced a return to normal assets last Friday. Some of that may even affect the value of bank deposits. However, economic conditions will have to improve rapidly to make a decisive decision in the levels cycle.

Sameer Narang, the chief economist at Baroda Bank, said inflation by the SBI should be viewed in the light of short-term, rising prices and the RBI’s decision to suspend monetary policy and eliminate the monetary policy. Short-term rate curves for up to one year reach and are likely to increase even in the coming months. In the Savior’s view, there is a good chance that interest rates will be higher than they were last year, he said.

Simultaneously, if prices could be seen in line with the growth trend, caregivers may have to wait before a significant increase in deposit rates. Neeraj Gambhir, group manager and chief treasurer, markets and full banking products, Axis Bank, said there was still a need for continued policy support. A complete withdrawal of financial incentives may not happen soon. Given that short-term prices are excellent, the RBI could begin to tighten short-term prices at the repo rate, and that could create some adjustments here and there.

Once the normal policy-making process has begun, market share power and banking credit profiles will also be involved in the cost of deposits. Narang said to prevent a few large corporations, private banks’ deposit costs are generally higher than those of public sector banks (PSBs). PSBs tend to have a higher market share in lending to state-owned enterprises, where the weights are risky and thus lower lending rates. Only those banks meet that price with meager deposit costs. 


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