MUMBAI: The State Bank of India has cut its lending rates by 50 basis points and reduced deposit rates under its special scheme by 25 basis points, joining other banks over a week after the RBI’s unexpected repo rate reduction.
The rate cut, effective June 15, applies to both existing repo-linked loans and new borrowers. The move aligns SBI with peers who responded more swiftly to the RBI’s unconventional 50 bps repo rate cut announced last week.
Most of the peers of SBI, such as the second largest state-run lender Bank of Baroda, the third largest Punjab National Bank, Bank of India, Indian Bank, Union Bank, and UCO Bank among others had already slashed the loan rates for existing borrowers and for new borrowers as they are protecting their margins. Because for those loans linked to the repo rate, or known as the external benchmark-linked loans, and are on floating rates, the repo reduction has to be passed on to existing borrowers if not on the day of the repo rate cut by the Reserve Bank, latest by the first day of the next month.
This leaves only the two largest private sector lenders, HDFC Bank and ICICI Bank, yet to lower their rates. All the new rates will be effective from June 15, SBI said.
The bank, which controls a fifth of the banking system’s assets and liabilities, said its external benchmark lending rate (EBLR) and home loan rate stand reduced by 50 bps, keeping with the Reserve Bank’s half percentage point reduction in the policy repo rate. The revised EBLR would be 8.15% as against the old rate of 8.65%, it added.
According to the revised data on the bank’s website, the home loans rate linked to EBLR will now be in the range of 7.5-8.45% based on the credit score of the borrower and the size of the loan, wherein under Rs 50 lakh loans are priced marginally lower than those above this amount.
To cushion the impact on margins, as the cost of its funds is very close to its lending rates, which stated differently means thinner margins, the lender has also reduced the interest rate on the special deposit scheme (444 days) called Amrit Vrishti by 25 bps to 6.60% with effect from June 15.
EBLR works as a benchmark for pricing various loans, and its calculation takes into account credit risk premium reflecting the risk associated with a borrower's credit profile.
The card rates for domestic retail term deposits (those below Rs 3 crore) have not been changed for now. Last month, the bank BI had reduced the interest on term deposits across maturities by 20 basis points.