State Bank of India, the country’s largest lender, has become the first domestic bank to link the interest rate it offers on savings account deposits to an external benchmark — the Reserve Bank of India’s repo rate.
Bank will effectively link all loan rates to an external benchmark either directly or indirectly, thereby attempting to speed up the transmission.
For savings account holders with balances up to Rs 1 lakh and borrowers with cash credit and overdraft limits up to Rs 1 lakh, interest rates will remain fixed.
The new rates linked the external benchmark rate of the repo rate, will be effective May 1, the bank said in a late evening statement.
To insulate the small deposit-holders and small borrowers from the movement of external benchmarks, the bank has decided to 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, the bank said.
The repo rate is currently at 6.25 percent after the February 7 review where the central bank surprisingly lowered the repo rate by 25 bps.
The bank has also linked all cash credit accounts and overdrafts with limits above Rs 1 lakh to the repo rate plus a spread of 2.25 percent.