Close on the heels of the Reserve Bank of India’s (RBI’s) fifth cut in the repo rate last week, State Bank of India (SBI) on Wednesday slashed the interest rate on savings bank deposits (with balances up to Rs 1 lakh) by 25 basis points (bps), from 3.50 per cent to 3.25 per cent, with effect from November 1, 2019.
The bank also slashed its retail term deposit and bulk term deposit interest rates by 10 bps and 30 bps, respectively, for ‘1 year to less than 2 years’ tenor, with effect from October 10, 2019. It has also reduced the MCLR (marginal cost of funds based lending rate) by 10 basis points, making home and personal loans cheaper for customers. This has been done “in view of the adequate liquidity in the system”, the bank said. Other banks are set to follow suit and slash the rates in order to retain their customer base.
According to banking sources, SBI’s move to trim rates on its savings deposits to 3.25 per cent is likely to trigger a spate of cuts across banks as they have moved to repo-linked loans. For big banks such as SBI, savings deposits form 25-35 per cent of deposits. The rate for SBI’s FD tenure of one year to less than 2 years is now 6.4 per cent and for 180 days to 210 days, the rate will be 5.80 per cent.
Lender hopes to boost consumption amid slowdown
SBI’s decision to cut both the lending and deposit rates may nudge people to borrow more and spend more at a time when the economy is facing a consumption slowdown. However, the issue of transmission of RBI’s repo rate cut into lending rates remains a major concern. While the bank slashed the deposit rates by up to 30 basis points, the lending rates have been brought down by only 10 basis points. The cut in MCLR may not immediately benefit the floating rate home loan customers of the bank. It remains to be seen as to what other banks and HFCs do.
Earlier, SBI had linked the interest rate on savings account deposits with balance of over Rs 1 lakh to the repo rate. Currently, it stands at 3 per cent. SBI’s domestic savings bank deposits stood at more than Rs 10.64 lakh crore at end-December 2018.
SBI has reduced its MCLR — sixth consecutive rate cut in FY19-20 — by 10 bps across all tenors in view of the festive season and extending benefit to customers across all segments. The one-year MCLR comes down to 8.05 per cent per annum from 8.15 per cent with effect from October 10. SBI’s two-year MCLR has declined by 10 bps to 81.5 per cent, three-year MCLR to 8.25 per cent and six-month MCLR to 7.9 per cent.
On October 4, the RBI slashed its key policy rate by 25 basis points to 5.15 per cent — the lowest level since March 2010 — stating that the “continuing slowdown warrants intensified efforts to restore the growth momentum”. This means interest rates on certains loans and deposits of banks will automatically come down as the RBI had already directed banks to link their interest rates to a benchmark rate. The fifth consecutive cut this year by the RBI has brought down the repo rate by 135 basis points from 6.50 per cent in 2019.
“With inflation being within the target, the forward guidance remains accommodative to revive growth. We believe the transmission of monetary policy rate changes will be faster now that banks have already introduced repo-linked retail and MSE products and the rate cuts will be passed on to these borrowers. With the busy and festive season having started, this rate cut will boost market sentiments,” said Padmaja Chunduru, MD and CEO of Indian Bank.
Mrutyunjay Mahapatra, MD and CEO of Syndicate Bank, said, “The RBI has continued its accommodative stance on monetary policy and interest rates. With this, the banking sector, which has moved from MCLR to external benchmark loan rate, shall pass on the 25 bps reduction to the ultimate consumers faster than in the past.” Stepping up its initiative to speed up transmission of rate reduction benefits to customers, the RBI last month made it mandatory for banks to link all new floating rate personal or retail loans and floating rate loans to MSMEs to an external benchmark like the repo rate effective October 1, 2019.