SBI slashes FD rates by 40 basis points .

SBI has cut FD interest rates by 40 basis points across tenors! 

The previous generation has hailed fixed deposits so much that even we find it attractive. Whenever a person in India has got some extra money, the first option that comes to mind is getting an FD done. Reasons for this are also simple – no risk of losing money, a decent rate of return (till now it was slightly more than inflation) and an option to get your money back anytime (compromising the interest). But, the latest news from the State Bank of India has put all the FD lovers in dilemma.

SBI has cut FD interest rates by 40 basis points across tenors! This is the second rate cut for the month. And, with this, the highest rate offered by SBI on FD now stands at just 5.4% (for fixed deposit that matures in 5 years and up to 10 years). And, the fixed deposit for 7 – 45 days will give only 2.9% return. Besides this, SBI has also slashed the interest rates on bulk deposits (comprising deposits of Rs. 2 crores and more) by 50 basis points. All this has already come into effect.

What Does This Mean?

SBI’s announcement to slash the FD rates has come after RBI announcement to cut the repo rate. Cutting the repo rate was RBI’s step to boost demand. And, it looks like slashing the FD rates is SBI contribution to the same. Expectedly, SBI has got a lot of cash post demonetization and that needs to be used in order to generate returns and that’s impossible with people consistently doing FDs. Also, PSUs have gathered lots of NPAs and they’re under pressure from the government to get rid of this.

It's important to understand that with this announcement, FD has become an unattractive option for people to invest in (with inflation growing faster than the deposit). So, they may look for other investment options. If the capital markets or equity markets gain because of this, it would in turn assist in the economic revival as well. But, will this happen as expected? We’ll have to wait and watch.

KEYWORD

• SBI has slashed FD interest rates by 40 bps.
• This has made FD an unattractive option for investing.

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