Current Affairs Economy & Banking

Category : Economy & Banking

State Bank of India 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. By doing so, the bank will effectively link all loan rates to an external benchmark either directly or indirectly, thereby attempting to speed up the transmission of any changes in the benchmark monetary policy rate to depositors and borrowers.

SBI announced the following changes: Savings accounts with deposits above Rs 1 lakh would be priced at 2.75% below the prevailing repo rate of 6.25%. The effective rate works out to be 3.5%, which is unchanged from the prevailing rate on savings accounts. Cash credit accounts and overdraft facilities over Rs 1 lakh would be priced at 2.25% over the repo rate. At the prevailing repo rate of 6.25%, this would mean a floor price of 8.5%. For all other floating rate products, including retail and corporate loans, the impact of SBI’s decision to link savings account deposit rates to the repo rate will be felt indirectly. These loans will continue to be linked to the 1-year MCLR (marginal cost lending rate).  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.

Source- Press Information Bureau (PIB)