SBI to link pricing of loans and deposits to repo rate from 1 May
11 March 2019
Effective 1 May, State Bank of India (SBI) will fix all new rates – both lending and deposit – based on the Reserve Bank of India’s (RBI) benchmark, the repo rate, the bank said in a release late on Saturday.
This is the first time that any Indian bank, either in the public sector or in the private sector, opts out of own cost-of-fund-based MCLR to follow RBI’s lead.
A transition to a repo rate-linked rate structure would ensure faster transmission of RBI’s monetary policy, especially since SBI, the nation's largest lender, controls nearly a quarter of the banking system.
The new rates linked the external benchmark rate of the repo rate will be effective 1 May, the bank said.
The move is expected to reduce the time lag in banks following up the RBI signal and speed up the monetary policy transmission through speedier action by lenders The RBI has all the while been unhappy with the way banks act on its policy rate directive.
"To address the concern of rigidities in the balance sheet structure and address the issue of quick transmission of changes in the RBI policy rates, effective May 1, 2019, we've taken the lead in linking key pricing decision for savings bank deposits and short-term loans to the repo rate of the RBI," SBI said in a late evening statement.
"This is a major policy decision we have taken. A 25 bps reduction in the repo rate can result in a 7-8 bps cut in our MCLR now," PTI quoted SBI managing director PK Gupta as saying.
SBI, at present, offers 3.50 per cent on savings bank deposits f up to Rs1 crore, and 4 per cent on those above Rs1 crore. Savings bank deposits above Rs1 lakh constitutes around 33 per cent of SBI's total deposit books Gupta said.
The new rate will apply only to those deposit accounts with a balance of over Rs1 lakh.
The repo rate has been reduced by 25 basis points to 6.25 per cent after the February 7 review. Any further reduction in repo rate will adversely affect SBI’s deposit rates. It would, however, help borrowers get loans at lower rates.
SBI has also linked all cash credit accounts and overdrafts with limits above Rs1 lakh to the repo rate plus a spread of 2.25 per cent. The risk premia over and above this floor rate of 8.50 per cent will be based on the risk profile of the borrower, as is the current practice, the bank said.
To exemption to small deposit-holders and small borrowers from the repo-rate link will save them of rate volatility.