State Bank Of India (SBI)

SBI hikes base rate by 75bps to 9.25% and hikes deposit rates by 75-225bps for short term deposits - Impact on margins negative ~5bps

SBI hikes base rate by 75bps to 9.25%: SBI has hiked its base rate and PLR by 75bps each to 9.25% and 14.0% respectively. This is a positive move for SBI as it would help the bank in coping margin pressures. Also it is positive for the sector as the rate gap between SBI and other PSBs is now narrowing. Base rates for most PSB’s stood at ~9.5% except for BoB, BoI, PNB (among major PSBs), who raised their base rates to 10% post the rate hike by the RBI.

Short term deposit rates hiked by 75-225bps: SBI has hiked its short term deposit rates by 75-225 bps for maturities upto 180 days. Rates for all deposits maturing post 180 days have been kept unchanged and the peak rate offered by the bank remains steady at 9.25%. We believe the move taken by the bank is to manage liquidity at the shorter end, which could get tighter as the government starts borrowing for this fiscal.

Margin Impact – negative 5bps: From the ALM perspective, assuming short term deposits (upto 180 days) constitute around 15% (excluding CASA balances) of SBI’s total deposit base and an average 175bps increase in deposit rates coupled with a 50bps hike in the savings rate, the margins could get negatively impacted by ~5bps assuming 60% of the advances get re-priced with a 75bps hike in the PLR and Base Rate.