SBI hikes rates on term deposits as liquidity stays stretched

State Bank of India, India's largest lender has raised short-term deposit rates for upto one year, by 100 basis point on Wednesday. SBI being a trend setter due to its sheer size, may prompt other banks to follow suit, as liquidity in the banking system stays stretched.

SBI is now offering 8% on all fixed deposits below one year. The rates are applicable from March 28, 2012.

SBI has increased only short-term deposits rate due to liquidity concerns in the short term. In fact, bank borrowings from RBI in late February touched a staggering Rs 1.8 lakhs crore, due to tight liquidity conditions.

The RBI has cut the CRR rates twice to ease liquidity conditions in the banking system, it did so first in January and then again earlier this month.

SBI's hike in interest rates comes a day after the government announced a hike in post office interest rates.

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