State Bank of India has cut interest rate on savings bank account deposits up to Rs 1 crore by 0.5 per cent. The new rate of interest, effective today, stands at 3.5 per cent, the lowest interest in six years.
The decision will impact 90 per cent of its customers, which stands at more than 42 crores.
The cut in interest rates comes just two days ahead of RBI’s monetary policy review meet. With SBI cutting rates, several other banks are set to follow.
The country’s largest lender however will continue to pay 4 per cent interest on savings bank accounts with deposits of above Rs 1 crore, the bank said.
The reduction, SBI said, is “on the back of large inflows in savings and current accounts during demonetisation period in November & December 2016.
“The decline in the rate of inflation, high real interest rates and the expected softening of interest rates are the other considerations warranting a revision in the rate of interest on savings bank,” it said.
The rationale for the rate cut, according to SBI Managing Director Rajnish Kumar, is that the real interest rates are really high and “there was no choice for the bank but to bring down the savings bank account interest rate…We have been cutting the term deposit rates and were watching for a right time (to cut rates).”
Under the current circumstances, Kumar said the choice before the bank was to either raise the marginal cost of lending rates (MCLR) or cut savings bank interest rates.
“We did not consider it appropriate to raise the MCLR, because for lot of segments like agriculture, SMEs, retail housing, affordable housing, the cost and EMI would have gone up,” Kumar explained.
Kumar also said the bank witnessed a surge in deposits following demonetisation in November and bulk of such deposits, which attracts interest are still with the bank.
(With inputs from PTI)