India’s largest lender State Bank of India (SBI) on Thursday said it will reduce interest rates on domestic term deposits of five year period or more to 8.5 per cent effective from Aug.7. “State Bank of India has decided to revise downwards the interest rate on domestic term deposits for tenors five years and above to 8.5 per cent per annum, with effect from Aug.7, 2012,” the government-run lender said in a regulatory filing to the Bombay Stock Exchange. The bank currently gives 8.75 per cent interest on term deposits of five years or above on amounts below Rs15 lakh. On term deposits on amounts from Rs15 lakh to less than Rs1 crore, the annual interest rate is 9 per cent. Effective from Aug.7, the bank will offer same interest rate of 8.5 per cent on both these categories —below Rs15 lakh and Rs15 lakh to less than Rs1 crore. Other rates will remain unchanged. SBI currently offers the highest interest rate of 9 per cent on term deposit of one year to less than two year period. SBI had on Wednesday announced 0.50 per cent cut in interest rates on home and car loans. Meanwhile, the government-run Punjab National Bank on Thursday hiked interest rates on term deposit of one year period by 0.25 per cent to 9 per cent for both domestic and external rupee accounts. “Punjab National Bank has decided to increase rate of interest on single domestic term deposit of less than Rs.1 crore from 8.75 per cent to 9 per cent for maturity of one year with effect from Aug.2, 2012,” PNB said in a statement. The same shall also be applicable to non-resident external rupee account (NRE) term deposits. Similarly, the interest rate of 9 per cent shall also be applicable to NRE term deposits of 1111 days, as applicable to domestic term deposits, PNB said. The share price of PNB fell 0.45 per cent to Rs728.40 at the Bombay Stock Exchange on Thursday. The new 5-year dollar bonds from State Bank of India and Export Import Bank of India have maintained the same spread differential in the secondary market as the level at which they were priced at, but there is some discussion around whether the gap should narrow from the current 20bp. SBI 2017s are trading at 359/356bp over US Treasuries, compared with their reoffer spread of 375bp while Exim 2017s are trading at 340/335bp over, tight to the 355bp reoffer. “They have maintained the gap at the launch in the secondary. The market is saying that’s where the gap is perhaps but I wont be surprised to see a little tighter. SBI may be looking a touch cheaper,” said a Singapore-based trader. Banking analysts say that although both banks have state-backing, the two lenders are very different and comparing an exim bank with a commercial bank is a difficult exercise. From gulftoday