Cheaper loans: SBI hints at rate cut as it trims interest on deposits

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Updated: July 30, 2019 7:09:34 AM

State Bank of India (SBI) on Monday cut interest rates on bulk and retail term deposits, signalling it could soon make credit cheaper for borrowers.

The bank hiked rates thrice between July 2018 and December 2018.

State Bank of India (SBI) on Monday cut interest rates on bulk and retail term deposits, signalling it could soon make credit cheaper for borrowers.

SBI’s one-year marginal cost of funds-based lending rate (MCLR) is currently 8.4%, higher than the 8.25% in July last year. The bank hiked rates thrice between July 2018 and December 2018. It first cut the MCLR by five bps in May 2019, following the Reserve Bank of India’s (RBI) second 25 basis points repo rate cut in April. In July, there was another 5-bps cut, which brought the lending rate down to 8.4%.

RBI governor Shaktikanta Das had met heads of public-sector banks (PSBs) a few days back to discuss, among other things, the “less than desired level of transmission of monetary policy rates”. The rate-setting monetary policy committee (MPC) will meet between August 5 and 7.

At the June policy meet, Das had said banks had transmitted about 21 bps of loan rate cuts as against 50 bps of repo rate cuts made in February and April.

Prashant Kumar, chief financial officer, SBI, said on a television channel on Monday the deposit rate cut had been triggered by a comfortable liquidity position. “It is a 20-bps cut for more than 179 days maturity and a bigger cut for a lower maturity where our rates were higher,” Kumar explained. The new rates on deposits are effective August 1 and the lender could lower loan rates after its upcoming asset liability committee (ALCO) meeting in August.

As per data released by the RBI, fresh lending rates remained sticky up to May and even increased 10 bps from their April levels. “Term deposit rates had seen strong upward movement from November 2017 to March 2018 by 20 bps to 6.7% but were flat thereafter with a marginal 15 bps rise until September 2018 to 6.8% and additional 10 bps over Q3FY19,” analysts at Kotak Institutional Equities wrote in a recent report.

SBI has trimmed interest rates by anywhere between 5 and 75 basis points (bps) at a time when liquidity in the system has been comfortable for nearly two months, the RBI has been actively demanding better transmission of the three rate cuts it has made in 2019 and the government has reduced rates on small savings schemes by 0.1% for the July-September quarter. However, deposits have been growing at about 10% year-on–year, fortnightly data from RBI shows.

A one-year fixed deposit of under Rs 2 crore with SBI will now earn 6.8% as against 7% earlier while deposits of over Rs 2 crore will continue to yield 6.7%. The bank’s closest peers HDFC Bank and Bank of Baroda (BoB) pay 7.1% and 6.45% on one-year retail term deposits.

Earlier this month, HDFC Bank, BoB, Punjab National Bank, Axis Bank, Kotak Mahindra Bank, Federal Bank and IDFC First Bank all revised deposit rates. BoB has also reduced its savings rate for balances up to Rs 50 lakh by 25 bps to 3.25%.

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