SBI links interest rates to repo rate: Here's how it will impact loans, savings account deposits

The State Bank of India (SBI) last week announced that it will link its savings deposits rates and short-term loans to the repo rate of the Reserve Bank of India (RBI). The largest public sector bank said it will link its savings deposits of over Rs 1 lakh to the repo rate and will link all cash credit limits and working capital, that is the loans,  to the repo rate, fixing them at a spread of 2.25 percent above repo.

The repo rate is currently at 6.25 percent after the February 7 review where the central bank surprisingly lowered the repo rate by 25 basis points. One basis point is a hundredth of a percentage point.

At present, the bank offers an interest rate of 3.5 percent per annum on deposits up to Rs 1 crore and 4 percent on deposits above Rs 1 crore.

As per the new linking norm, the deposits above Rs 1 lakh will change as per the decisions taken in the bi-monthly RBI policy meeting.

As per the norm, the savings interest rates will go up when the repo rate rises and vice-versa.

The norm, however, does not hold for savings deposits below Rs 1 lakh. The rates, which had been pegged before the announcement, will be followed.

For short-term borrowers with cash credit accounts and overdraft limits up to Rs 1 lakh, the norm does not apply.

However, the short-term borrowers with cash credit accounts and overdraft limit over Rs 1 lakh will have to comply with the linking rule. Their EMIs will depend on the rise or fall of repo rate.