SBI Revises Rate, But Upwards

Recollect the fact that SBI had, in the first week of June, slashed the retail term deposit interest rate by 25 basis points to 7.25 per cent for tenure of up to 240 days with effect from June 8, 2012. Most of the other banks have also started reducing the rates by a few basis points. With this reversal in the interest rate, banks will go on reducing the rate over a period of time but in a gradual manner. These small changes could be due to their asset-liability mismatch.

The hike in the rate is shocking as the economy actually expects the rates to fall. However, SBI has revised the rate only for one of its buckets and hence this can be considered moderate. The move could also be due to the fact that the RBI maintained its status quo in the mid-quarter review of its monetary policy for 2012-13. Now sights are set for the RBI’s first quarter review scheduled for July 31, 2012. The RBI will once again take a look at the WPI and CPI data for the month of June 2012. Further, it would also consider the June quarter performance of India Inc. which is expected to be tepid in nature.

If inflation moves southwards and growth continues to remain subdued, there could be some action at the apex end. The banks have not passed on the full effect of the rate cut of 50 basis points in April 2012 to their customers. However, if there is some action now, the banks would probably pass on the effect to their customers which will reduce the interest rates on deposits and will also reduce the burden of EMI on all the loan takers.