The largest lender State Bank of India (SBI) has made its move and it will shock depositors.The savings bank interest rates have been cut by 25 bps for balances above Rs. 1.00 lakh and the effective rate will be 3.25% per annum. This is something that can be blamed on RBI’s repo rate cut of 25 basis points to 6% from previous 6.25% in last monetary policy meet. The explanation behind this is that last month, SBI had linked both its saving deposits and short term loans above Rs 1 lakh with policy repo rate movement. This meant, that any hike or cut in policy repo rate by RBI,  will directly impact SBI’s saving deposits and short term loan interest rates. While lending rates have come down at SBI, but so has deposit rates above Rs 1 lakh! 

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In a notification, the bank said that, since SBI has linked its SB rates to the repo rate, the saving bank rates shall also stand revised as under w.e.f 1st May 2019. 

Now, while saving deposits up to Rs 1 lakh will continue to enjoy 3.50% interest rate per annum, balances above Rs 1 lakh will attract interest rate of 3.25% - lower by 25 basis points compared to previous 3.50%. Of course, with SBI, cut in saving deposits interest rate, other lenders savings account will become attractive. 

Talking about rate cut impact on saving deposits, Emkay said, “The cut in Repo rate will have an impact of lower savings bank (SB) deposit rate for SBI (may be followed up by other banks), thereby potentially creating scope for a spread expansion in legacy lending accounts. However, since the systemic liquidity is in deficit, lower SB rate can lead to some cannibalization. Hence, the effective gains on spreads may be fairly limited, in our view.”