SBI's new loan, deposit pricing system takes effect: 5 key points

State Bank of India's new rules are limited to savings bank deposits with balances of more than Rs 1 lakh and short-term rules

The State Bank of India will move to a new system of evaluating deposit and loan interest rates from May 1. The bank has decided to link its key pricing decisions on savings bank deposits and short-term loans to the repo rate.

The bank will become the first in India to adopt an external benchmark to set rates. At present, most banks finalise their loan interest rates on the basis of Marginal Cost of Fund Base Lending Rate (MCLR ).

The current effective rate on savings deposits is 3.50 per annum, 2.50 percentage points below the current repo rate of 6 per cent.

Here're key points to know about the new SBI rules:

1. SBI will use RBI's policy repo rate as a benchmark to set the savings deposit rates and those for short-term loans from May 1. This means, your EMIs and deposit interest rates will fluctuate as and when RBI changes the repo rate (rate at which commercial banks borrow money from the RBI). 

2. The new rules are limited to savings bank deposits with balances of more than Rs 1 lakh and short-term rules. "SBI will exempt savings bank account holders with balances up to Rs 1 lakh and borrowers with CC/OD limits up to Rs 1 lakh from this. This has been done to insulate them from the movement of external benchmarks," SBI said.

3. Term deposits will continue to be priced on the basis of market conditions.

4. Cash credit (CC) accounts and overdrafts (OD) of more than Rs 1 lakh will be linked to the repo rate. 

5. SBI will become the first bank to switch to an external benchmark to decide rates.