SBI slashes lending rates on cost of depositors

Public-sector lender State Bank of India (SBI) has slashed its lending rates by up to 10 basis points at the cost of its saving bank depositors who have balances above Rs 1 lakh in the bank, a week after the Reserve Bank slashed the repo rate by 25 basis points.

SBI, on Tuesday, announced that it will be reducing the interest rate by 10 bps on loans up to Rs 30 lakh. Now the applicable interest rate for such Housing loans below Rs 30 lakh will range from 8.60% per annum to 8.90% per annum. The previous range of interest rates varied between 8.7% to 9% for this category.

However, the lending rate cut will come at the expense of the estimated 22 million depositors of the bank, who will see their interest rates getting slashed by 25 basis points to 3.25% from existing 3.5%. The bank has around 440 million savings bank accounts, of which 5% are in the above Rs 1 lakh category -- on which bank decided to slash the rates. However, the bank decided to maintain its deposit rates at 3.5% for saving bank accounts below Rs 1 lakh.

The banks have been reluctant to pass on the benefit of the rate cut to the consumers as the deposit growth is already low and banks can’t afford to lose their depositors owing to the tight liquidity conditions in the market.

Even if the deposit rates, say, are reduced by the banks. The effect would be seen with a lag -- the reason being that only new deposits will be repriced at a lower rate. The old deposits will continue getting the earlier rate.

On the other hand another public sector lender Indian Overseas Bank has also decided to slash the Marginal Cost of Funds based Lending Rate (MCLR) by 5 basis.