After SBI, more PSU banks link deposit and loan rates to repo

More government-owned banks have announced linking their lending and deposit rates to the Reserve Bank of India's (RBI's) repo for facilitating faster transmission after the State Bank of India did so in May.

While Syndicate Bank has made several changes to its offerings on loans and deposit products, Bank of India, Union Bank and Allahabad Bank also said they are working on the modalities to launch similar products.

"Housing, vehicle and consumer loans will now be offered at the basis of a repo-linked rate. With the change, the housing loans will start from repo plus 2.9 per cent at 8.3 per cent," Syndicate Bank said in a statement. The saving bank deposits of over Rs 25 lakh will also be based on the repo rate, it added.

Bank of India said another dimension of rate transmission process is by way of offering repo linked lending rate to select customer segments, including personal loans. "We are working out the necessary modalities in this regard so as to launch such products during the current month," it said.

Union Bank said to provide better interest rate transmission, it will soon link its housing and vehicle loan portfolio to repo rate from the current marginal cost of funds based lending rate.

Allahabad Bank's Managing Director S S Mallikarjuna said the bank will explore the option to develop products of both assets and liabilities linked with an external benchmark to transmit the benefits of rate cut to our customers shortly.

Indian Bank too said its home and vehicle loans will be linked to the repo rate from August 15.

The move to link the deposit and lending rates by these four lenders come even as the RBI has not mandated them to do so. On August 7, the RBI cut repo rate for the fourth consecutive time this calendar year by 35 basis points to 5.4 per cent.

Repo rate is the rate at which the RBI lends money to commercial banks. A repo rate cut allows banks to reduce interest rates for consumers on loans, and lowers equal monthly instalments on home loans, car loans and personal loans.

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