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SBI does a first, cuts savings rate to 3.5% on deposits up to Rs 1 cr

50-bps reduction may prompt others to follow

Abhijit Lele  |  Mumbai 

State Bank of India
State Bank of India

The country’s largest bank—State Bank of India (SBI) — cut on 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 to follow suit.

of over Rs 1 crore will continue to earn four per cent interest per annum, said in a statement.

This is the first rate revision in savings deposit rate by after the Reserve Bank of India (RBI) deregulated savings bank deposit on October 25, 2011. 

The rate cut in savings accounts also comes two days ahead of the RBI’s review on August 2. 

Giving the rationale for the decision, Rajnish Kumar, managing director (national banking group), ABI, said low inflation and high real weighed on the bank to decide on the cut. 

Source: Bloomberg
Source: Bloomberg
“It was a choice between increasing (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 We opted to cut savings rate, helping to maintain at the existing level,” he said.

With 90 per cent of its 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 cheered the bank’s decision, as shares closed 4.5 per cent higher at Rs 312 per share on the on Monday.  

said it had cut the 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 base after the government demonetised old Rs 500 and Rs 1,000 notes in November 2016. 

Of the garnered during the currency purge, about 40 per cent continue to remain with the bank as  

Analysts said the bank has taken this step to protect its net interest margin when from is low due to tepid demand for advances. The surplus liquidity in the system offers room to tweak rates further.

An 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 at current levels, the official added.

Asked if the bank would revise both its lending and if were to cut the key repo rate, an executive said: “The situation is always dynamic and asset committee (ALCO) always takes into account the competitive situation in the market. We also have to consider that is muted.” 

“The are showing a softening bias. The bank’s is scheduled to meet in the last week of August,” Kumar added. 

Two top executives of private sector banks, which offer on savings deposits, said SBI’s decision would set the trend for the to lower rates. “Other public and are expected to follow suit,” said an analyst with a domestic  

caters to a customer base of more than 420 million.  




First Published: Tue, August 01 2017. 07:47 IST