The country’s largest bank—State Bank of India (SBI) — cut interest rate
on savings deposits
up to Rs 1 crore by 50 basis points (bps) to 3.5 per cent per annum with immediate effect, setting the stage for other banks
to follow suit.
of over Rs 1 crore will continue to earn four per cent interest per annum, SBI
said in a statement.
This is the first rate revision in savings deposit rate by SBI
after the Reserve Bank of India (RBI) deregulated savings bank deposit interest rate
on October 25, 2011.
The rate cut in savings accounts also comes two days ahead of the RBI’s monetary policy
review on August 2.
Giving the rationale for the decision, Rajnish Kumar, managing director (national banking group), ABI, said low inflation and high real interest rate
weighed on the bank to decide on the cut.
“It was a choice between increasing MCLR
(marginal cost of funds-based lending rate) or reduce the savings bank rates. A hike in lending rates would have meant an increase in equated monthly instalments (EMIs) for retail, small and medium enterprises, and farm loans.
We opted to cut savings rate, helping to maintain MCLR
at the existing level,” he said.
With 90 per cent of its savings deposits
falling under the Rs 1-crore bracket, the bank will end up lowering its annual interest bill by Rs 4,230 crore on its latest savings deposit base of Rs 9.4 lakh crore.
For the current financial year (FY18), this works out to a saving of Rs 2,820 crore for SBI, considering four months have elapsed.
The stock market
cheered the bank’s decision, as SBI
shares closed 4.5 per cent higher at Rs 312 per share on the BSE
said it had cut the MCLR
or lending rate by 90 bps in January 2017. It did so, on the strength of huge inflows of money into current account and savings deposits, a low-cost liability
base after the government demonetised old Rs 500 and Rs 1,000 notes in November 2016.
Of the deposits
garnered during the currency purge, about 40 per cent continue to remain with the bank as low-cost funds.
Analysts said the bank has taken this step to protect its net interest margin when income
is low due to tepid demand for advances. The surplus liquidity in the system offers room to tweak rates further.
executive said, “We encourage depositors to switch to fixed deposits, which are less volatile in terms of rates and can benefit from our strong reach, distribution and franchise network.” The reduction in rates was also necessary, as it was difficult to maintain MCLR
at current levels, the official added.
Asked if the bank would revise both its lending and savings rate
were to cut the key repo rate, an SBI
executive said: “The situation is always dynamic and asset liability
committee (ALCO) always takes into account the competitive situation in the market. We also have to consider that credit growth
“The interest rates
are showing a softening bias. The bank’s ALCO
is scheduled to meet in the last week of August,” Kumar added.
caters to a customer base of more than 420 million.