SBI FD Interest Rates: Repo Rate Stays At 6.5%; Will Largest PSU Bank Revise Its Fixed Deposits Rates?

The Reserve has kept the policy repo rate unchanged at 6.5% for the fifth time in a row. Policy repo rate is directly linked to deposits and lending rates. Although, in the past few months despite RBI maintaining the status quo many banks have revised their FD rates, however, that has not been the case with India's largest PSU bank, State Bank of India (SBI). This PSU has kept its FD rates unchanged since February 2023, which was also the last hike seen by RBI. Is SBI planning to revise its FD rates anytime soon?

SBI FD Rates:

With effect from February 15, 2023, SBI's FD rates range from 3% to 7% for the general category, while senior citizens earn up to 3.50% to 7.50%. SBI offers 7.10% to the general public and 7.60% to elderlies under its 400 days (Special Scheme i.e. " Amrit Kalash").

RBI Repo Rate:

RBI decided to hold key rates for the fifth consecutive monetary policy while maintaining its 'withdrawal of accommodation' stance on December 8th. That being said, the policy repo rate under the liquidity adjustment facility (LAF) is unchanged at 6.50%. While the standing deposit facility (SDF) rate remains unchanged at 6.25% and the marginal standing facility (MSF) rate and the Bank Rate at 6.75% each.

It needs to be noted that the central bank has kept rates unchanged since the start of FY24 to observe the rate hike impacts on the economy and businesses. After Russia invaded Ukraine in early 2022, RBI including other central banks went for aggressive hiking in interest rates to tame extreme inflation pressure. From May 2022 to February 2023, RBI has hiked the repo rate by 250 bps.

In February 2023, RBI raised its rates by 25 bps, taking the repo rate to 6.5%. The largest PSU bank, SBI also hiked its FD rates for both general and senior citizens by 25 bps after this monetary policy outcome.

When SBI will revise its FD rates?

Since February, SBI has made no change to its FD rates. It is most likely that the bank is not planning to hike FD rates but rather expects them to be on an elevated level for a longer duration. SBI has linked its term deposits to the repo rate and hence any upside, downside or status in policy rates, similar outcomes are seen in the bank's deposit rates as well.

As per a Motilal Oswal research note dated November 30, 2023, SBI does not expect any further increase in deposit rates but believes that rates may remain elevated for a long.

Motilal had organized an interactive session with Dinesh Kumar Khara, Chairman, State Bank of India (SBIN), to understand the impact on the bank's capital adequacy and growth plans after the recent increase in risk weight (RWA) by the RBI, and to discuss its margin outlook and
progress on stated objectives.

The brokerage highlighted that SBI's management has indicated that the cost of deposits has nearly peaked and the bank has not increased TD rates since Feb'23. The limited residual deposit re-pricing is expected to happen in 3QFY24 and will largely be offset by the repricing of MCLR-linked loans. SBIN does not expect any further increase in deposit rates but believes that rates may remain elevated for a long.

Further, the brokerage said, "The bank expects NIMs to be broadly stable with a possibility of a minor 3-5bp contraction. SBIN also expects to improve its LDR, which should support margins. The bank has not changed interest rates on unsecured loans and loans to NBFCs after the recent RBI measures and will be reviewing the same over the coming months."

Motilal has recommended buying on SBI for a target price of Rs 700. On BSE, SBI's share price is at Rs 614 apiece, up by 0.41% with a market cap of Rs 5,47,971.17 crore.