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SBI Savings Deposits Above Rs. 1 Lakh Become Less Attractive With 3.25% Rate

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After the repo rate by the RBI, all eyes were on the only public sector lender SBI as it has notified linking its short term borrowings as well as savings deposits account with balance of over Rs. 1 lakh to repo rate. So, the rate cut by the apex bank needed to be reflected in the bank's cash credit and overdraft costs as well as savings deposit rates.

SBI Savings Deposits Above Rs. 1 Lakh Become Less Attractive
 

And as it is for short term credit above Rs. 1 lakh, the bank has linked it with repo rate with a spread of 2.25%, meaning borrowers will be charged an interest rate of 8.5%. While, this should also fall down in line with the recent rate cut but here we will discuss the impact on depositor.

In a notification, the largest public bank has notified that since it has linked savings deposit rate with balance above Rs. 1 lakh, after the rate cut it also stands revised to 3.25% with effect from May 1, 2019.

For the savings deposit customers, with effect from May 1, 2019 will see a cut in interest rates on balances above Rs. 1 lakh while deposits up to Rs. 1 lakh will continue to earn 3.5% per annum.

The move of linking SBI's deposit rates with key repo rate will enable faster transmission as well as re-pricing of deposit that others in the domain can follow. But for now, SBI savings deposit with balances over Rs. 1 lakh will become less attractive, fetching just 3.25%.

Talking about rate cut impact on saving deposits, Emkay said, "The cut in Repo rate will have an impact of lower savings bank (SB) deposit rate for SBI (may be followed up by other banks), thereby potentially creating scope for a spread expansion in legacy lending accounts. However, since the systemic liquidity is in deficit, lower SB rate can lead to some cannibalization. Hence, the effective gains on spreads may be fairly limited, in our view."

GoodReturns.in

Story first published: Wednesday, April 10, 2019, 11:12 [IST]
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