SBI announces linking of most of interest rates in line with RBI’s repo rate, for quick transmission of rate change

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In a significant move to address the issue of rapid transmission of changes in rates (interest rates) decided by RBI‘s Monetary Policy Committee (MPC), SBI on Friday announced that from May 1 it will be linking interest rates on savings bank (SB) deposits with balances over 1 lakh and cash credit (CC) accounts and overdrafts (OD) with limits above 1 lakh to the repo rate decided by the Central bank.

With this state Bank of India (SBI) becomes the first domestic bank to link the interest rate it offers on deposits over ₹1 lakh in saving account, cash credit (CC) accounts and OD’s to one of the four benchmark that is repo rate decided by MPC.

The moves comes after RBI’s earlier order, directing lenders to link all the floating rate personal or retail and Floating rate for loans to micro and small enterprises to any one of four the external benchmarks- MPC decided repo rate or 91 days treasury bill or 182 days treasury bill or a benchmark market rate produced by Financial Benchmarks India Pvt Ltd.

“In order to address the concern of rigidities in the balance sheet structure and address the issue of quick transmission of changes in RBI’s policy rates, effective from May 1, SBI has taken the lead in linking its key pricing decision for SB deposits and short-term loans to the repo rate of the RBI,” SBI said.

SBI will link SB deposits, with balances above 1 lakh to repo rate with current effective rate being 3.50% per annum which is 2.75% lower than the current repo rate of 6.25% decided by MPC in its February meeting.

CC accounts and overdraft facilities over 1 lakh would be priced at 2.25% over the repo rate. At the current repo rate this would lead to a floor price of 8.5%.

No change has been made in the floating rate pertaining to Saving accounts having balance less than ₹1 lakh and CC’s and OD’s having a limit of up to ₹1 lakh. The new ratings will be effective from May 1.

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