Cut in SBI's savings rate: Banks' margin to benefit

Commercial banks are waiting for the Reserve Bank of India’s (RBI’s) policy rate action to decide on tweaking their savings bank rate, after State Bank of India (SBI) decided to cut its savings rate on Monday.

Saving rate cut of 50 basis points could provide 10-15 basis point benefit to net interest margins (NIM) of banks, analysts said. RBI policy is due on Wednesday.

Top executives of two private banks said given the surplus liquidity in the system, the interest rates (both on the liabilities and lending side) are moving downwards. “SBI’s decision to reduce savings rate gives us a basis to review (reduce) rates. After monetary policy review, ALCO (asset-liability committee) will revise rates. It is crucial to protect margins,” said an executive. 

The country’s largest bank had cut the interest rate on savings bank account deposits up to Rs 1 crore by 0.5 per cent to 3.5 per cent. It would continue to pay four per cent rate on deposits above Rs 1 crore. Credit Suisse said in a report savings accounts constitute 25-35 per cent of total deposits for banks. SBI (36 per cent); ICICI (35 per cent); Punjab National Bank (34 per cent); and HDFC Bank and Axis (30 per cent) have among the highest share and thus would be the largest beneficiaries if they cut rates. A 50-bp drop in the cost of these deposits translates into a 10-15-bp NIM benefit if gains are entirely retained.

Karthik Srinivasan, senior vice-president and group head-financial sector ratings, ICRA, said liquidity was abundant. “The savings deposit rate cut (by SBI) comes at a times when incremental cost of funds is moving up. Banks could see a benefit of 10-12 basis points over a period for NIM.”

Lenders’ interest income and NIMs have been under pressure due to a number of factors, including weak credit demand, customers shifting to lower rate as they move to marginal cost of funds-based lending rate (MCLR) regime for base rate. Credit Sussie said the risk for public sector banks could be if their savings rate cuts accelerate market share loss on the liabilities side. Over the past year, the loan market share shift had accelerated (private banks accounted for Rs 92 per cent of incremental loans), while the deposit share shift was slower (private banks accounted for 39 per cent of incremental deposits), it said.

Sanjay Agarwal, managing director and chief executive, AU Small Finance Bank (ASFB), said: “With a cut in savings rate by SBI, bank like us, which offers higher rate, can raise more money. It also means ASFB will not be required to hike savings rate further. Along with it come a responsibility to deploy money in such a way that returns are viable.”  

Sarvjit Singh Samra, managing director, Capital Small Finance Bank, said the bank offered four per cent rate on savings bank deposits and has no plans to reduce it. “If large banks reduce rates in tandem with SBI’s decision, we will follow suit.”

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