Last Monday, the state Bank of India cut rate on savings account by 50bps up to 3.5% for deposits up to Rs. 1 crore. The new rate is lowest in the last six years.
The newly announced SBI interest rates on savings deposits may impact nearly 90% of its customers who made considerable savings in SBI Savings Accounts. The bank came up with this decision following the surge in saving accounts during demonetization for which SBI had to make heavy payouts as interest. Currently, SBI has a savings bank account base of Rs. 9 lakh crore.
The State Bank of India announced its reduced interest rates for savings accounts just before the monetary policy meet of RBI. SBI will, however, continue to pay 4% interest on savings bank accounts that have deposits over Rs. 1 crore. The new rate cut, effective from today, will be applicable only on savings deposits up to Rs. 1 crore.
Commenting the rate cut, Rajnish Kumar, the Managing Director of SBI said, “there was no choice for the bank but to bring down the savings bank account interest rate…We have been cutting the term deposit rates and were watching for a right time (to cut rates).” He also said, “The revision in savings bank rate would enable us to maintain the MCLR at the existing rates, benefiting a large segment of retail borrowers in SME, agriculture & affordable housing segments. We encourage people to move to fixed deposits as we expect less volatility and better facilitation due to our strong reach, distribution and franchise network.”
However, in the current situation, SBI had two choices – either to raise the marginal cost of lending rates (MCLR) or reduce savings bank interest rates. The bank did not consider raising MCLR rates as a suitable option as it would affect segments like SMEs, agriculture, and affordable housing by increasing cost and monthly EMIs of consumers. Hence, it decided to cut interest rates on savings accounts.
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