A day after state Bank of India (SBI) took the decision of linking the interest rate of short-term loans and large savings deposits rates to the external benchmark of MPC’s repo rate to address the issue of rapid transmission of changes in rates (interest rates) decided by RBI‘s Monetary Policy Committee (MPC).
The SBI chairman Rajnish Kumar on Saturday said that loans and deposits of below ₹ 1 lakh will continue to be lined to the current MCLR (Marginal Cost fun-based Lending Rate) to protect the retail customers from market fluctuations.
“The category which we have linked to the external benchmark is the best category–all cash credits and overdrafts above ₹1 lakh. Here also, for accounts with ₹1 lakh and below, we’ve kept out of the purview as we believe that retail customers should not be forced to suffer from the market vagaries,” Kumar told reporters while attending an even organised by Chamber of Commerce sidelines.
Becoming the first domestic bank, SBI said 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. The new regulations will be effective from May 1.
At present lenders like Kotak Mahindra Bank, Yes Bank, RBL Bank and Singaporean lender DBS Bank are paying higher interest of about 5-6% on the saving account deposits, regardless of the amount. While SBI and other big lenders like ICICI and HDFC Bank offer an interest rate of about 4% per annum.
Now after the announcement, from May 1 bank will earn an interest of 3.5% on the saving account deposit of over 1 lakh. While for amount less than 1 lakh interest earned would be 4%.
On the issue SBI Chairman also commented that, across the world the retail loans are not left to the market forces alone, its the corporate loans accounts which are left to the market forces. Further, he also said that the SBI’s decision was in sync with the central bank earlier order on MCLR and loan prices.
“Retail loans will continue to be linked to MCLR for the time being. If the loan is long-term in nature, you cannot re-price it very frequently…that way MCLR is a good solution,” Kumar said.
Linking savings bank deposits rate to the repo rate to MCLR, will lead to self adjustment of of MCLR in accordance to the change in repo rate.