MUMBAI: State Bank of India (SBI), the country’s largest lender, has cut its deposit rates following a 25 basis-point reduction in the Reserve Bank of India’s benchmark rate last week. Lending rates linked to the marginal cost of funds-based lending rate (MCLR), however, remain unchanged, as the bank’s cost of funds has yet to decline meaningfully.
The bank has reduced its external benchmark linked lending rate (EBLR)-which is pegged to the repo rate-by 25 basis points in line with the cut in the repo rate. This will bring down the interest rate on home loans and other personal loans for borrowers.
The adjustment in deposit rates-10 basis points across select tenors-is expected to feed into a lower MCLR in the coming months, easing borrowing costs for businesses. SBI’s move is likely to prompt similar action from other public sector banks.
Last week, HDFC Bank cut its savings account rates by 25 basis points, lowering the base rate to 2.75% and the rate for balances above Rs 50 lakh to 3.25% while Bank of India withdrew its Special Deposit Scheme. The private lender had cut FD rates ahead of the RBI revising its repo rates earlier this month.
While SBI has retained its special 444-day deposit scheme, Amrit Vrishti, the interest rate on this product has been reduced from 7.25% to 7.05%. Effective April 15, deposit rates have been revised in two key tenors: ‘1 year to less than 2 years’ and ‘2 years to less than 3 years’.
Both general and senior citizen rates in these categories have been lowered by 10 basis points. For the shorter tenor, rates drop from 6.8% to 6.7% for the general public, and from 7.3% to 7.2% for senior citizens. In the longer tenor, the figures decline from 7% to 6.9% and 7.5% to 7.4%, respectively. All other deposit maturities remain unchanged from the levels set on June 15, 2024.
Unlike the RBI’s rate cut in Feb, which failed to pass through to deposit rates amid tight liquidity, the central bank this time appears intent on ensuring broader monetary transmission.
A flush of liquidity in the banking system has brought down overnight rates closer to the reverse repo rate-the floor of the policy corridor-rather than the policy rate itself.
