State Bank's new rule on savings accounts, short-term loans is effective from today

From today 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 Rs.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. 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.

SBI savings accounts with balances up to Rs.1 lakh will continue to fetch interest rate of 3.50% per annum. On savings accounts with deposits above Rs.1 lakh, SBI will be offering interest rate of 275 bps below repo rate from today. 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 Rs.1 crore and 4% on deposits above Rs.1 crore. This comprises about 95% of total SBI savings account holders.

Also, from today SBI will link short-term loans such as cash credit accounts and overdrafts with limits above Rs.1 lakh to the repo rate for better transmission of RBI’s policy rates. All cash credit accounts and overdrafts with limits above Rs.1 lakh will also be linked to the benchmark policy rate, plus a spread of 2.25%—amounting to 8.25%.

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 Rs.28 lakh crore and advances of over Rs.21 lakh crore