MUMBAI: In a major move aimed at faster monetary transmission, State Bank of India on Friday announced it will link savings bank deposits and short term loans above Rs 1 lakh to the RBI’s repo rate with effect from May 1.
However, account holders with balances below Rs 1 lakh are exempted from the scheme. This will insulate small deposit-holders and small borrowers from the movement of external benchmarks.
Monetary transmission happens when lenders pass on RBI’s rate cuts as well as hikes to borrowers. Banks are known to delay benefits to customers but quick to pass on any burden due to RBI’s rate revision.
Currently, the repo rate or the rate at which RBI lends money to banks, stands at 6.25 per cent. SBI’s current effective savings bank deposits rate is 3.50 per cent and it is 2.75 per cent below the repo rate.
Under the new system, SBI will maintain its spreads at a fixed 2.75 per cent, and the savings bank deposits range will change to the extent of any future repo rate changes. Similarly, on the lending side, it will link all the cash credit accounts and overdrafts with limit above `1 lakh to the repo rate with a spread of 2.25 per cent.
Savings bank deposits above Rs 1 lakh constitutes around 33 per cent of SBI’s total deposit books, SBI Managing Director PK Gupta said. Currently, the bank is offering an interest rate of 3.50 per cent for savings bank deposits up to `1 crore and 4 per cent for deposits above Rs 1 crore, he added.
“This is a major policy decision we have taken. A 25 basis points reduction in the repo rate can result in a 7-8 basis points cut in our MCLR now,” he added.