SBI to use repo rate as benchmark to price MSME, retail loans from Oct 1

State Bank of India (SBI) will use repo rate as the external benchmark to price all new floating rate loans for Micro and small and medium enterprises (MSMEs), housing and retail loans and medium-size enterprises from October 1, 2019.

This decision follows the Reserve Bank of India notification to link all new floating rate, personal or retail loans (housing, auto, etc.) and floating rate loans to Micro and Small Enterprises, to external benchmarks.

Country’s largest lender said it will voluntarily extend benchmark-based lending to medium enterprises also to boost lending to the MSME sector as a whole.

SBI had introduced floating rate home loans effective July 1, 2019. A few modifications have been made in the scheme effective 1st October 2019 to comply with the latest regulatory guidelines.

RBI’s Internal Study Group (ISG) had examined various aspects of the marginal cost of funds-based lending rate (MCLR) system.

ISG, in a report in October 2017, had observed that internal benchmarks such as the base rate/MCLR have not delivered effective transmission of monetary policy. The Study Group had, therefore, recommended a switchover to an external benchmark in a time-bound manner.

SBI had introduced floating rate home loans effective July 1, 2019. A few modifications have been made in the scheme effective 1st October 2019 to comply with the latest regulatory guidelines.

State Bank of India to reduce rate on savings deposits by 25 bps to 3.25%

State Bank of India will reduce the interest rate by 25 basis points on cash credit and overdraft facilities with a balance over Rs 1 lakh from May 1. This comes after the Reserve Bank of India’s decision to cut the repo rate by 25 basis points (bps) to 6 per cent. The revised rate will be 8.25 per cent.

The reduction in the marginal cost of funds based lending rate (MCLR) is likely to be 8-10 basis points, depending on the tenor of loans, a senior SBI executive said.

The bank will also cut the rate on savings deposits (above Rs 1 lakh) by 25 bps to 3.25 per cent.

In March, SBI had said that it would use the RBI’s policy rate as external benchmark for the savings deposit rates and short-term loans from May 1. It is the first bank to announce a timeline for switching to external benchmarks.

The interest on cash credit accounts and overdraft acco­unts with over Rs 1 lakh will be 2.25 percentage points above the repo rate. The risk premiums over and above this floor rate would be based on the risk profile of the borrowers.

And for savings bank deposit accounts with balances above Rs 1 lakh will be 2.75 percentage points below the repo rate.