If RBI reduces report rate by another 25 basis points in its next meeting, then SBI savings bank interest rate will come down to 3.25% from May 1.

New Delhi: In a first, State Bank of India, country’s biggest lender has decided to link interest rates on savings bank account to an external benchmark from May 1, 2019. With this SBI becomes the first Indian bank to link both deposit rate and lending rate to an external benchmark.

Here is how the move is going to impact depositors:
1) SBI said for savings bank account having an average balance of more than Rs 1 lakh, the effective interest rate will be 2.75% less than the repo rate (which is 6.25% currently) from May 1. Assuming that RBI keeps the repo rate unchanged in its next credit policy in April, the interest rate on savings accounts from May 1 will be 3.5% (6.25-2.75%).


However, if RBI reduces report rate by another 25 basis points in its next meeting, then SBI savings bank interest rate will come down to 3.25% from May 1.

2) For all cash credit accounts and overdraft accounts above Rs 1 lakh, floor rate will be 2.25% above the repo rate, SBI said. On this floor rate, SBI will charge a risk premium based on the risk profile of the borrower. So from May 1, the base rate for these accounts will be 8.5%.

However, the interest rate remains unchanged for savings account holders and borrowers with cash credit and overdraft up to Rs 1 lakh.



This move is going to impact depositors as nearly 40% of SBI’s deposits are in savings bank account and out of these deposits, 80% by value is with accounts with balances more than Rs 1 lakh.

The move will ensure that a change in repo rate by RBI is quickly reflected in deposit as well as in lending rates of SBI. The move from SBI comes after RBI Governor Shaktikanta Das held multiple meetings with PSU bank heads to ensure faster transmission of policy rates to depositors and borrowers. Now, other PSU banks are expected to follow soon after this move from SBI.

Analysts also believe that this move will be poitive for banks as it will reduce their margin volatility.



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