India’s largest bank, State Bank of India (SBI), on Wednesday lowered its marginal cost of funds-based lending rate, or MCLR, by 15 basis points across all tenors immediately after the Reserve Bank of India’s (RBI’s) Monetary Policy Committee (MPC) cut the benchmark repo rate by 35 basis points to 5.4%.
With this move, SBI’s one-year MCLR rate stands at 8.25% per annum with effect from 10 August 2019 compared with 8.4% earlier.
MCLR is an internal reference rate for a bank to decide the interest rate they can charge on loans.
According to SBI’s press release, this is the fourth consecutive cut in MCLR by SBI in FY 2019-20. SBI had earlier reduced the MCLR rate by 5 basis points after RBI’s June monetary policy review.
Meanwhile, interest rates will go down for SBI’s repo rate-linked home loan product as well, which has been effective from 1 July 2019.
Also, SBI will now offer lower interest rates on large savings accounts and short-term loans as the bank moved to a new interest rate regime from 1 May 2019 under which it linked its interest rate on savings accounts (with balance above Rs 1 lakh) and short-term loans (like overdraft and cash credit facility) to RBI’s repo rate.
Under the new interest rate regime, on savings accounts with deposits above Rs 1 lakh, SBI offers an interest rate that is 275 basis points lower than the repo rate. Since the repo rate has now changed to 5.4%, interest rates on deposits above Rs 1 lakh will come down to 2.65% compared with 3% earlier.
However, account holders with a balance of up to Rs 1 lakh will continue to earn 3.5% interest, as per the current fixed rates. This interest rate may also change, but only if the bank decides. It does not automatically track the movement of repo rate.
Similarly, all cash credit accounts and overdrafts with limits above Rs 1 lakh are also linked to the benchmark policy rate, plus a spread of 225 basis points—amounting to 7.65% now in the current situation. In addition, SBI will also charge a risk premium “over and above” this floor rate of 7.65% based on the risk profile of the borrower.
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