From May 1, India’s largest bank State Bank of India (SBI) will move to a new interest rate regime on large savings account deposits as well as short-term loans. In March, SBI had announced that it will link its interest rate on savings account with balance above ₹1 lakh and short-term loans like overdraft and cash credit facility to Reserve Bank of India’s (RBI) repo rate, effective 1 May 2019. Or in other words, interest rates on large SBI savings account deposits and interest rate on some short-term loans will automatically change as and when RBI changes its repo rate. This will help in better transmission of RBI’s policy rates into the banking system.
Here are 5 things to know about SBI’s new rules on savings accounts and overdraft facility:
1) After back-to-back interest rate cuts by the RBI in February and April, repo rate currently stands at 6%. On savings accounts with deposits above ₹1 lakh, SBI will be offering interest rate of 275 bps below repo rate from May 1. This means effective rate will be 3.25% per annum. Currently, SBI offers interest rate of 3.5% on savings account deposits of up to ₹1 crore and 4% on deposits above ₹1 crore.
2) SBI savings accounts with balances up to ₹1 lakh will continue to fetch interest rate of 3.50% per annum. This comprises about 95% of total SBI savings account holders.
3) Also, from May 1, SBI will link short-term loans such as cash credit accounts and overdrafts with limits above ₹1 lakh to the repo rate for better transmission of RBI’s policy rates.
4) All cash credit accounts and overdrafts with limits above ₹1 lakh will also be linked to the benchmark policy rate, plus a spread of 2.25%—amounting to 8.25%.
5) SBI will charge a risk premium on these loans, over and above the floor rate of 8.25%, based on the risk profile of the borrower, similar to the current practice.
Earlier on April 9, SBI had reduced its MCLR by 5 bps across all tenors, with 1-year MCLR coming down from 8.55% per annum to 8.50%. As on December 31, 2018, SBI had a deposit base of over ₹28 lakh crore and advances of over ₹21 lakh crore.
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