State Bank of India on Monday announced yet another reduction on Home Loans and Fixed Deposits. The new rates will be effective from September 10. Thereafter, home loans will be cheaper but returns for savers will also be lower. It is third rate reduction in the current fiscal year.
One year MCLR (Marginal Cost of Funds based Lending Rate), to which all the retail lending rates are linked to, has been reduced to 8.15 per cent from 8.25 per cent. Lending rates are cut by 10 basis points across tenors. It also slashed retail term deposit rates by 20-25 bps and bulk term deposit rates by 10-20 bps across tenors, effective from September 10. SBI attributed the falling interest rate scenario and surplus liquidity for realigning its interest rate on term deposits.
Prior to this, the country’s largest lender State Bank of India on August 23 had slashed interest rates on fixed deposits across various tenure by up to 0.5 percentage point, a move which would lower returns for savers. In view of the falling interest rate scenario and surplus liquidity, SBI realigned its interest rate on Term Deposits with effect from August 26, 2019, said SBI.
The move to reduce interest rate on fixed deposits by the country’s largest lender is expected to be followed by other lenders. The bank had slashed retail term deposit rates by 10-50 basis points across tenors as well as bulk term deposit rates by 30-70 basis points across tenors. The bank had slashed the interest rate for the fixed deposits with maturity of 7-45 days to 4.5 per cent from existing 5 per cent. The rate reduction 46-179 days, 180 days to less than one year maturities baskets is 25 basis points (0.25 percentage point) at 5.5 per cent and 6 per cent respectively while for maturity bucket of 1-2 years is only 10 basis points at 6.70 per cent. For top maturity period of 5-10 years, the decrease is again 25 basis points at 6.25 per cent.
The bank also said that it had retained interest rate on savings bank deposit at 3 per cent for customers with balances above Rs 1 lakh with a view to protecting the interest of savings bank depositors. Customers with SB balance up to Rs 1 lakh will continue to get the rate of interest at 3.50 per cent despite cut in the repo rate by the RBI earlier in August. The RBI in its third bi-monthly policy had reduced repo rate by 35 basis point (from 5.75 per cent to 5.40 per cent) with effect from August 7, 2019.
With effect from May 1, 2019, SBI had linked the interest rate on Savings Bank deposits (for balances above Rs 1 lakh) with the Repo rate (i.e. 275 basis points below Repo rate) without changing the rate of 3.5 per cent for SB balances up to Rs 1 lakh.
“Had this rate cut been transmitted to savings bank (SB) deposits, the applicable returns on SB deposits with balances above Rs 1 lakh would have dropped to 2.65 per cent (275 bps below Repo rate, i.e. 5.40%) with effect from September 1, 2019,” it said.
