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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
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.
Saving Deposits
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.
Loans
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.
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