Effective from 1st October 2019 Allahabad Bank will be linking the Savings Deposits with over Rs. 40 lakhs to Repo Rate as per RBI directive. We might recall, RBI had advised to link all floating rate retail loans to external benchmark.
Banks were of the view that it would not be viable if only Loans are linked to the floating rates and the deposits are also to be linked and in that line SBI had linked all deposits of over Rs. 1 lakh to the repo rate in May this year. Thus Allahabad Bank’s effective rate of interest aligned with current repo rate shall be 3.65%.
Also banks are finding it difficult to give up their margins and thus give the benefit of floating rate to bulk deposits of over Rs.2 crore which is mainly contributed by the Corporates.
Further explorations:
- Banks also contemplate to hedge their interest rate risk through derivatives.
- Lenders may manipulate the pressure, by cutting rate on savings/term deposits or linking it to repo rate by using scope of three months’ rests/converting SME (Small and Medium Enterprise) loans to short term fixed rate loans and/or using interest rate derivatives to Hedge these risks.
Note:
It may be noted that Allahabad Bank is slated to be merged with Indian Bank, as per the recent Government decision on merger of banks.
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