The Chairman of State Bank of India (SBI), Rajnish Kumar, confirmed on Saturday that small loans and deposits i.e. those that are valued below Rs.1 lakh will be linked to the Marginal Cost of Funds based Lending Rate (MCLR). This is being done to ensure that retail customers who have small loans or deposits are not affected by market fluctuations that direct the repo rate.
SBI, the country’s largest lender, had announced on Friday that it would link savings account deposits with more than Rs.1 lakh balance and cash credit accounts, short-term loans, and overdrafts with limits that exceed Rs.1 lakh to the repo rate fixed by the Reserve Bank of India (RBI), with effect from May 1. The repo rate, at present, is at 6.25 per cent.
Therefore, from May 1 onwards, SBI savings deposits that have a balance over Rs.1 lakh will earn an interest equal to 3.5 percent and accounts with a balance lower than Rs.1 lakh will earn an interest of 4 per cent.
SBI is the very first bank that has announced switching to an external benchmark such as the repo rate in a given timeline.
While public sector banks such as SBI and private sector banks like ICICI Bank and HDFC Bank offer a 4 per cent interest on savings accounts regardless of the balance amount, certain banks such as Yes Bank, Kotak Mahindra, DBS Bank, and RBL Bank offer interest at 5 to 6 per cent.
Source: Economic Times