SBI all set to link saving deposits, loan pricing to repo rate from May 1

SBIIndia’s largest lender the State Bank of India (SBI) will soon be using the Reserve Bank of India’s (RBI’s) policy repo rate as a benchmark in a bid to finalise the savings deposit rates and short-term loans from May 1.

It is the first bank in India to announce a timeline prior to switching to an external benchmark. In its official communiqué, the bank decision pertaining to the linkage of its key pricing decisions on savings bank deposits and short-term loans to the repo rate will help the lender in dealing with rigidities in the balance sheet and ensure a quick transmission of changes in the RBI’s policy rates.

It will be linking the savings bank deposits with balances over ~1 lakh to the repo rate. According the effective rate applicable on savings deposits is 3.50 per annum, 2.75 percentage points lower than the current repo rate of 6.25 per cent.

“Term deposits will continue to be priced on the basis of market conditions,” said Prashant Kumar, Chief Financial Officer, SBI.

Kumar said that the Cash credit (CC) accounts and overdrafts (OD) over Rs 1 lakh will be connected to the repo rate (current repo rate 6.25 per cent plus a spread of 2.25 per cent).

Further, risk premiums over and above the mentioned floor rate of 8.50 percent would be based on the risk profile of the borrower, as is the current practice, SBI said.

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