The interest rate on SBI's large savings accounts (deposits over ₹1 lakh) will automatically come down as the Reserve Bank of India cut its repo rate by 35 basis points to 5.4%. On the other side, the interest charged by SBI on short-term loans like overdraft and cash credit facility and a repo rate linked home loan product will also go down. Repo rate is the key policy rate at which the RBI lends to commercial bank.
From May this year, SBI had switched to a new interest rate regime on large savings accounts (balance above ₹1 lakh) as well as short-term loans like overdraft and cash credit facility, linking them to RBI's repo rate. Whenever there is a change in RBI's repo rate, the change gets automatically reflected in these SBI products. This has been done for better transmission of RBI’s policy rates into the banking system.
SBI's large savings accounts will offer an interest rate which is 275 bps below repo rate. This means effective interest rate on large SBI savings accounts will get automatically changed to 2.65%. SBI savings accounts with deposits below ₹1 lakh will continue to fetch 3.5% interest rate.
On July 1, SBI had also launched a repo rate-linked home loan. The home loan-linked to repo rate is actually in sync with repo rate-linked lending rate (RLLR), a rate linked with repo and a margin of 2.25%. Also, SBI charges a spread above the RLLR.
All SBI cash credit accounts and overdraft facilities with limits above ₹1 lakh is linked to the RBI's repo rate, plus a spread of 2.25%. SBI charges a risk premium on these loans, over and above the floor rate of 7.65%, based on the risk profile of the borrower.
Effective from August 1, SBI sharply cut its fixed deposit (FD) rates sharply by 20-75 basis points. Many banks including HDFC Bank and PNB have also revised their interest rates lower this month.
