SBI Move may Ig­nite a Rate War Among PSU, Pri­vate Banks

The Economic Times - - Companies: Pursuit Of Profit - Con­tin­ued on FI­NANCE & COMMODITIES

Mumbai: In a sur­prise move on Mon­day, In­dia’s largest len­der State Bank of In­dia cut in­ter­est rate on sav­ings bank ac­counts by 50 ba­sis points to 3.5% on bal­ance of ₹ 1 crore and be­low, af­ter over six years of sta­tus quo. About 90% of SBI’s sav­ings bank ac­counts have bal­ances of un­der ₹ 1 crore and this lat­est move couldlead­toa­margin­im­prove­ment of 10-15 ba­sis points.

“Real in­ter­est rates are re­ally high, the in­ter­est on sav­ings bank was 3.5% in April 2011 and there was a neg­a­tive carry of nearly 5%,” said Ra­jnish Kumar, MD, SBI. “But to­day if we look at in­fla­tion and all other bench­mark rates there is a pos­i­tive carry of nearly 2.4%. The choice be­fore the bank was ei­ther to raise MCLR or re­duce the sav­ings bank in­ter­est rate, we de­cided upon the lat­ter.”

SBI’s rate cut could ig­nite a rate war among the large state-run and pri­vate banks, but most mid-sized and small fi­nance banks hun­gry to gain in­cre­men­tal mar­ket share could de­cide to hold rates.

While the im­me­di­ate sav­ings for the bank will be re­flected in its Septem­ber quar­ter earn­ings, most an­a­lysts feel it is too early to eval­u­ate if this would lead to a long-term mar­gin im­prove­ment as most lead­ing banks have posted de­clines in net in­ter­est mar­gins over the last one year.

“In­vestors should view this as a lead­ing in­di­ca­tor to con­tin­ued soft­en­ing of rates, while the­o­ret­i­cally, this should re­sult in sav­ings in fund­ing costs, we view this as struc­turally mar­gin neu­tral,” said Gau­tam Ch­hugani, di­rec­tor, In­dia fi­nan­cials, San­ford C. Bern­stein. “We be­lieve SBI will be able to stem their mar­gin de­cline in the near term but the im­pact could be quite lim­ited in the long-run as lend­ing rates con­tinue to soften as well.”

Prior to the in­ter­est rate dereg­u­la­tion in Oc­to­ber 2011, SBI had main­tained a sav­ings bank in­ter­est rate of 3.5% since March 2003. The staterun len­der held ₹ 9.4 lakh crore as sav­ings bank de­posits at the end of June 2017, out of its to­tal de­posits o f nearly ₹ 20.5 l a kh c ro re. “Sig­nif­i­cant amount has gone out of the in­flow that we saw dur­ing de­mon­eti­sa­tion,” said An­shula Kant, CFO, SBI.

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