SBI cuts loan, deposit prices again; chairman says expect more

The largest lender SBI on Monday slashed its lending rates by 0.10 percent for the fifth time since April and signaled towards more softening ahead, as the government and Reserve Bank try to push up the sagging growth with cheaper loans.

The bank described the move to slash both deposit and loan prices as a result of the excess liquidity in the system as well as it, and the falling interest rate scenario.

It can be noted that system-wide bank credit and deposits have been hovering around 12 percent since the beginning of the year.

This is the fifth rate cut by State Bank this fiscal, and takes the quantum of the decreases to 0.40 percent, yanking down its one-year benchmark rate to 8.15 percent. The cuts are effective Tuesday.

The bank has cut its marginal cost of funds-based lending rate (MCLR) by 0.10 percent and the one-year MCLR, to which its key loans like home mortgages are aligned, stands at 8.15 percent now.

The same one-year MCLR of its private sector rivals ICICI Bank and HDFC Bank stands at 8.30 percent and 8.35 percent, respectively.

The bank has also cut the retail term deposit rates by up to 0.25 percent, and the bulk term deposit rates by up to 0.20 percent.

Speaking to PTI on the sidelines of an event, bank chairman Rajnish Kumar said there will be further "softening" in the rates by the bank going forward, and affirmed its commitment to support the economy till there is credit demand.

The bank's moves in the future will also be dependent on the calls which the Reserve Bank takes at its next review in October, he said.

For the RBI, the rate call is a function of the movement in inflation, Kumar said, adding it is "under control" at present.

Kumar said the economy needs a demand-side stimulus at present, and made clear that interest rates will not go up.

It can be noted that the RBI is peeved at lenders for not passing the entire quantum of its rate calls to final borrowers, while the banks claim it generally takes time for liabilities to repriced before the transmission can happen.

As a solution, the RBI has made it mandatory for all lenders to have their lending rates linked to an external benchmark like the repo rate, at which it lends to the system. SBI has a majority of its deposits and loan products now linked to external benchmarks.

However, it can be noted that lending rates are still much higher than the RBI's repo rate of 5.40 percent-- which is at a nine-year low after in four successive moves, the central bank cut the repo rates by a cumulative 110 bps since February.