It may be recalled that RBI had deregulated the interest rates on SB Accounts which was 4%, and extended permission to individual banks, to decide on the interest rates on SB Accounts.  This made some of the Private sectors to give interest on SB Accounts to the tune of say 6.5% to 7%.

Today, the interest rate applicable for deposits up to 1 crore, on Savings Bank Account deposits was reduced by 0.5 per cent by the leading Bank SBI.  The Interest rate which was 4% has been brought down to 3.5%  w.e.f 1st Aug 2017. This news has come, just two days before the monetary policy of RBI meet. The bank holds a SB Deposit of around R. 9 lac crore.  However, the bank announced that deposits above Rs.1 crore will continue to attract interest at 4% p.a.  The bank has already cut the Term Deposit Rates.

The bank attributes the reasons for reduction in the interest rates to heavy inflow of cash in SB and Current Accounts, during demonetization period ie., Nov and Dec 2016.  Also, reasons are attributed to decline in the inflation rate, increase real interest rates and softening of interest rate expected in future.   The bank adds that they had to choose between the two choices viz

  1. Raise the Marginal Cost of Lending Rates (MCLR) or
  2. Reduce the SB interest rates.

However, the bank did not prefer the first option, since a raise in MCLR would affect large number of SME, Retail Housing, Agriculture, borrowers, let apart the cost as well as the EMI would have increased.

This gives an alarm for the RBI’s Monetary Policy committee review meet scheduled on 2nd August 2017, and possible hopes of a reduction in the REPO rate.  Possibly the other PSU might follow the suit….let us wait and see.

Author: Admin Bankedge

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