After slashing the MCLR (Marginal cost-based lending rate) by 15 basis points recently, the country’s largest lender, State Bank of India, on Friday cut the interest rates on fixed deposits (FDs) across various tenure by up to 0.5 percentage point (50 basis points) in a move that will bring down the returns of savers.
“In view of the falling interest rate scenario and surplus liquidity, the bank has slashed retail term deposit rates by 10-50 bps across tenors as well as bulk term deposit rates by 30-70 bps across tenors,” the bank said in a statement. The bank has realigned the interest rate on term deposits with effect from August 26, 2019. Other banks are expected to announce similar cut in FD rates in the coming days.
The SBI move follows the 35 basis points reduction in Repo rate to 5.40 per cent in the monetary policy review on August 7. The bank has slashed the interest rate for the fixed deposits with maturity of 7-45 days to 4.5 per cent from existing 5 per cent. The rate reduction for deposits of 46-179 days, 180 days to less than one year maturities baskets is 25 basis points (0.25 percentage point) at 5.5 per cent and 6 per cent respectively while for maturity bucket of 1-2 years is only 10 basis points at 6.70 per cent.
For the maturity period of 5-10 years, the decrease is again 25 basis points at 6.25 per cent. Bankers say deposit rates will have to be brought down to effect a cut in lending rates. The bank also said that it has retained interest rate on savings bank deposit at 3 per cent for customers with balances above Rs 1 lakh with a view to protecting the interest of savings bank depositors. Customers with SB balance up to Rs 1 lakh will continue to get the rate of interest at 3.50 per cent despite cut in the repo rate by the RBI earlier this month.
With effect from May 1, 2019, SBI had linked the interest rate on savings bank deposits (for balances above Rs 1 lakh) with the Repo rate (i.e. 275 basis points below Repo rate) without changing the rate of 3.5 per cent for SB balances up to Rs 1 lakh.
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