In a first, SBI links pricing of loans, deposits to repo rate

In a first-of-its kind move that will ensure faster monetary transmission, the nation's largest lender State Bank of India Friday announced linking of its savings deposits rates and short-term loans to the RBI's repo rate.

The new rates, linked to the external benchmark rate, would be effective May 1, the bank said in a late evening statement.

The move would help speed up the monetary transmission process wherein lenders pass on RBI's rate cuts as well as hikes to borrowers. The RBI has been unhappy with delays in transmission of rate cut benefits by the banks.

SBI said it would 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.

This would insulate small deposit-holders and small borrowers from the movement of external benchmarks.

"To address the concern of rigidities in the balance sheet structure and address the issue of quick transmission of changes in the RBI policy rates, effective May 1, 2019, we've taken the lead in linking key pricing decision for savings bank deposits and short-term loans to the repo rate of the RBI," SBI said.

Savings bank deposits above Rs 1 lakh constitutes around 33 percent of SBI's total deposit books, SBI Managing Director PK Gupta said.

Currently, the bank is offering interest rate of 3.50 per cent for savings bank deposits up to Rs 1 crore and 4 per cent for deposits above Rs 1 crore, he added.

"This is a major policy decision we have taken. A 25 basis points reduction in the repo rate can result in a 7-8 basis points cut in our MCLR now," Gupta told

(This article has not been edited by Zeebiz editorial team and is auto-generated from an agency feed.)