SBI links pricing of loans, deposits to repo rate; new rate effective May 1

In a first-of-its-kind initiative, the nation's largest lender State Bank Friday announced linking of its savings deposits rates and short-term loans to an external benchmark--the repo rate of the Reserve Bank.

The new rates will be effective May 1, the bank said in a late evening statement.

The move will to a large extent speed up the monetary transmission process--which is banks passing on the rate cuts that the Reserve Bank announces to their borrowers-something that has been missing all these while and something that the monetary authority has been unhappy with.

"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 May 1m 2019, we have taken the lead in linking key pricing decision for savings bank deposits and short-term loans to the repo rate of the RBI," the bank said in a statement.

But the move will not benefit all its depositors as the new rate is applicable only to those with a balance of over Rs 1 lakh in their accounts.

The repo rate is currently at 6.25 per cent after the February 7 review where the central bank surprisingly lowered the repo rate by 25 bps.

The lender said it will link the savings bank deposits, with balance above Rs 1 lakh to the repo rate with current effective rate being 3.50 per cent per annum, 2.75 per cent below the present repo rate.

It has also linked all cash credit accounts and overdrafts with limits above Rs 1 lakh to the repo rate plus a spread of 2.25 per cent.

The risk premia over and above this floor rate of 8.50 per cent will be based on the risk profile of the borrower, as is the current practice, the statement said.

To insulate the small deposit-holders and small borrowers from the movement of external benchmarks, the bank has decided to exempt savings bank account holders with balances up to Rs 1 lakh and borrowers with cash credit accounts and overdraft limits up to Rs 1 lakh from linkage to the repo rate, the bank said.