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Mumbai: State Bank of India (SBI) has trimmed its deposit rates by 25 basis points (bps) across all maturities and has withdrawn the special 1,000-day deposit scheme with effect from next Monday.Now, the bank is likely to offer 6.75 percent on deposits for 2-3 years, which includes the 1,000-day tenure, against seven percent earlier. The reduction in rates brings SBI's rates in line with what is offered by some large public sector banks. This move also appears to be counter cyclical, considering that surplus liquidity is slowly drying up and the central bank has been repeatedly warning about the need to withdraw monetary accommodation.

In his interview to the Economic Times, SBI Chief Financial Officer SS Ranjan said, "The move to cut deposit rates would not impact deposit mobilisation drive. The reduction is marginal. We don't think customers will move out due to this. We expect second quarter margins to improve over the first quarter. While third quarter margins will be even better."However, the rate cut has to be seen in the context of SBI's net interest margin, which stood at 2.3 percent for the quarter ended June 2009, down 63 basis points over March 2009. Since June, the bank has also announced multiple reduction in interest rates on home, auto and SME loans.

It lowered deposit rates by 225 basis points from the beginning of this calendar year. It lowered rates from nine percent in January 2009 to 6.75 percent now. In the same period, the bank lowered its prime lending rate once from 12.25 percent to 11.75 percent. The bank has reduced interest rates on several retail products like home loans, auto loans and education loans to 8-10 percent.