After MCLR cut, SBI revises fixed deposit rates by 25 basis points

State Bank of India (SBI), the country's biggest lender has cut interest rates on fixed deposits (FDs) by 25 basis points for deposits below Rs 1 crore. The revised interest rate, that is applicable for fixed deposits across all maturities, becomes effective from November 1. So a one-year maturity will now fetch 6.25 per cent interest against 6.50 per cent earlier. Senior citizens too have the bear the brunt of 25 basis point cut. A one-year FD that used to fetch senior citizens 7 per cent will earn them just 6.75 per cent.

Besides interest rates on FDs, SBI has also cut its lending rate (marginal cost-based lending rates or MCLR) across maturities by 5 basis points. This is SBI's first lending rate cut in 10 months. A 1-year MCLR which was 8 per cent earlier now stands at 7.95 per cent.

Banks led by SBI had last sharply cut lending rates under the MCLR system in early January.

In April 2016, RBI came up with a new benchmark-MCLR for faster transmission of rate cuts. However, varying reset periods under the same and tweaking by banks led to considerable time lag in full transmission of the rate cut, thereby defeating its whole purpose.  

The new lending rate also sought to remove much of the discretion commercial banks have to set lending rates. But to its frustration, the pace of bank lending rate cuts has lagged the reduction in policy rates, which fell by a total 200 basis points since January 2015.

The RBI wanted banks to lower lending rates further to accelerate credit growth and private investment in an economy growing at its slowest in more than three years. Bank loans last financial year grew at their slowest pace in more than six decades.

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