SBI Savings Bank Rate Cut To Lowest In 6 Years: How It Will Impact You

SBI has cut savings bank interest rate to 3.5 per cent.

SBI Savings Bank Rate Cut To Lowest In 6 Years: How It Will Impact You

This is the first interest rate change on SBI savings account since 2011.

India's biggest lender SBI on Monday cut interest rate on savings bank account to lowest in six years, which has been hailed as a "bold" move by analysts. Customers maintaining account balance of Rs. 1 crore and below will get interest at 3.5 per cent per annum, effective from July 31, 2017. SBI customers with saving bank account balance of Rs. 1 crore and above will continue to earn interest at 4 per cent per annum. SBI shares surged 4.5 per cent on Monday after the bank announced the move. Analysts say that they don't expect a similar move in fixed deposit rates on an immediate basis unless RBI changes its long-term stance.

10 things to know about SBI savings deposit interest rate cut:

1) In 2011, RBI had freed savings bank deposit rates. "We see this as a bold move as first time after de-regulation of savings account deposits a big bank has changed savings account rates," global brokerage Nomura said in a note.

2) Nomura said that the SBI rate cut could prompt other banks to follow suit and cut their savings bank deposit rates. Some smaller banks currently offer 6 per cent on their savings account deposits. "We believe most banks were waiting for SBI to cut savings account rates, and hence we expect most large banks to follow," Nomura said.

4) Manoj Nagpal, CEO of Outlook Asia, said that he does not expect the savings bank rate cut to lead to a similar rate cut in longer-term fixed deposit rates. "For further reduction in the longer term rates, RBI has to signal a clear change in stance from a neutral to a softening stand," he said. "A 25 bps cut is already factored in by the markets and hence the commentary of RBI, if it decides to change its long-term stance is very crucial for the rate cuts to be on the longer end."

4) SBI said the bank has around Rs 9.4 lakh crore in savings deposits and 90 per cent of which are under Rs 1 crore balance savings accounts.

5) SBI has encouraged customers to move to fixed deposits. "We encourage people to move to FDR (fixed deposit rates) as we expect less volatility and better facilitation due to our strong reach, and franchise network," a top official of SBI said.

6) From an earnings perspective, Nomura said the positive impact is highest for public sector banks (12-20% of PBT) due to their weak overall profitability. Impact on private banks profitability will be 3-6% if they cut their savings account rate, the brokerage added.

7) Traders though said the move also likely came in anticipation of a 25-basis-points cut in the repo rate by the Reserve Bank of India at its policy meeting tomorrow. Banks typically cut deposit rates once the central bank lowers the policy rate.

8) An SBI official said that the bank was paying 4 per cent interest rate on savings bank accounts since 2011, although the overall interest rate has come down and also the retail inflation.

9) Under the present circumstances of weak credit growth, he said, the choice before the bank is to either raise the marginal cost of lending rates (MCLR) or cut savings bank interest rates. "We did not consider it appropriate to raise the MCLR, because for lot of segments like agriculture, SMEs, retail housing, affordable housing, the cost and EMI would have gone up," he said.

10) Another top official of the SBI said the bank has attracted Rs 1.5 trillion (Rs 1.5 lakh crore) worth of inflows into savings accounts during the note-bank period but 60 per cent of that have gone out of the bank now.

Get Breaking news, live coverage, and Latest News from India and around the world on Catch all the Live TV action on NDTV 24x7 and NDTV India. Like us on Facebook or follow us on Twitter and Instagram for latest news and live news updates.

NDTV Beeps - your daily newsletter

................................ Advertisement ................................

................................ Advertisement ................................

................................ Advertisement ................................