State Bank of India (SBI), India’s largest bank from 1st May 2019 has moved to a new interest rate rule on large savings account deposits and short-term loans. In the month of March, the bank had announced that it will link its interest rate on savings account with balance above Rs. 1 lakh along with short-term loans for example overdraft & cash credit facility to RBI’s (Reserve Bank of India) repo rate from 1st May 2019.
In other words, it can be said that interest rates on large SBI savings account deposits & interest rate on few short-term loans will automatically change whenever the Reserve Bank of India changes its repo rate. In this way RBI’s policy rates will properly get transmitted into the banking system.
To recall, State Bank of India’s domestic savings bank deposits was over Rs.10.64 lakh crore at the end of December 2018.
Here are few important things that the SBI customer should know about its new rules on savings accounts & overdraft facility:
1. After end-to-end interest rate reduction by the RBI in February & April, the repo rate at present stands at 6 percent. On savings accounts with deposits over Rs. 1 lakh, the State bank of India will provide an interest rate of 275 bps below the repo rate from 1st May. That means the effective rate will be 3.25 percent / annum. Presently, SBI offers interest rate of 3.5 percent on savings account deposits of up to Rs. 1 crore and 4 percent on deposits more than Rs. 1 crore.
State Bank of India savings accounts having balances up to Rs. 1 lakh will continue to get interest rate of 3.50 percent per annum. This contains about 95 percent of total SBI savings account holders.
In addition, from 1st May 2019, SBI will link its short-term loans like cash credit accounts as well as overdrafts with limits over Rs. 1 lakh to repo rate for better transmission of Reserve Bank of India’s policy rates.
Also, all the cash credit accounts & overdrafts with limits over Rs. 1 lakh will be linked to benchmark policy rate, with a spread of 2.25 percent that amounts to 8.25 percent.
The bank will charge a risk premium on all these loans, besides the floor rate of 8.25 percent, based on the risk profile of the borrower, similar to the current practice.
Analysts are optimistic about the impact of SBI's latest move to introduce a rate mechanism, which is translucent and that can be swiftly transmitted when there is a regulatory change.
Last year in December, the Reserve Bank of India had in suggested that floating interest rates on personal, home, auto & micro and small enterprises (MSEs) loans must be linked to external benchmarks such as repo rate / treasury yields, from 1st April 2019. But later RBI deferred the time limit saying it will further hold discussions with banks regarding the linking interest rates.
On 9th April 2019, SBI had cut its MCLR by 5 bps in all tenors, with one-year MCLR coming down from 8.55 percent / annum to 8.50 percent.
For more information you can either visit the official website of SBI or go to its nearest branch.
