Whenever the Reserve Bank of India brings in a change in the repo rate, these SBI products automatically reflect such changes.
The monetary policy committee of the Reserve Bank of India (RBI) today reduced the repo rate by 35 basis points (bps) to 5.4 per cent. The central bank has cut the key rate fourth time in a row this calendar year, starting from February 2019.
With the RBI’s repo rate cut, the interest rate on SBI’s large savings accounts with deposits over Rs 1 lakh will also automatically come down from today.
SBI had switched to a new interest rate regime from May this year, on large savings accounts with balance above Rs 1 lakh, along with short-term loans like overdraft and cash credit facility, linking them to the RBI’s repo rate. Hence, whenever the Reserve Bank of India brings in a change in the repo rate, these SBI products automatically reflect such changes. Industry experts say this was done for better transmission of the RBI’s policy rates into the banking system.
SBI savings accounts with deposits below Rs 1 lakh will continue to earn a 3.5 per cent interest rate. However, the large savings accounts offer an interest rate of 2.75 per cent below the RBI’s Repo Rate. Hence, the effective interest rate on large SBI savings accounts will automatically change to 2.65 per cent. Additionally, on short-term loans like cash credit facility, overdraft and a repo rate linked home loan product the interest charged by SBI will also go down.
The RBI reduced the key policy rates by 25 bps each time, in the last three monetary policy reviews. In total, the central bank has reduced key policy rates by 110 bps, by adding this current rate cut. As of now, post the rate cut, the repo rate stands at 5.40 per cent. The reverse repo rate has also been reduced from 5.50 per cent to 5.15 per cent. Repo rate is the key rate of interest at which commercial banks borrow money from the RBI. Hence, when the Reserve Bank of India cuts the repo rate, banks also reduce their lending rates.
SBI had also launched in July a repo rate-linked home loan, which is in sync with the repo rate-linked lending rate (RLLR). SBI also charges a spread above the RLLR.
SBI has sharply cut its Fixed Deposit rates by 20-75 bps, effective from August 1. Other banks, including PNB and HDFC Bank, have also revised and lowered their interest rates from this month.