Article taken from HT epaper written by B.S. Srinivasalu Reddy.

In a positive signal to those who save, the State Bank of India (SBI), India’s largest commercial bank, will raise interest rates on domestic term deposits. Beginning June 1, 2008, the bank will hike interest rates on deposits, with a maturity period of two years and above, by 0.25-0.50 per cent.

The move is likely to benefit depositors as they will get a slightly higher interest return in the long-run at a time when inflation is likely to get higher and push up interest rates across the board. However, investment analysts feel that the bank deposit rates will cross the 10 per cent mark in three to six months time.

In the new rates, deposits with a maturity period of two years to less than three years, will get a return of 8.75 per cent (up 0.25 %), three years to less than five years we get 8.50 per cent (up 0.35 %), and deposits of above five years will earn 9 per cent (up 0.50 %). Senior citizens, who got 0.50 per cent higher interest rate on deposits of more than two years, we now get them on deposits of over three years’ maturity.

Other public sector banks are waiting. “There is ample money with banks,” said B. Sambamurthy, CMD, Corporation Bank. “We will wait and watch.”

With inflation at a high of 7.82 per cent, real returns from bank deposits are very low.