State Bank of India, the country's largest lender, has cut the interest rate for cash credit (CC) and overdraft (OD) accounts with limits above Rs 1 lakh. The bank's decision to pass on the benefit comes two days after the Reserve Bank of India reduced repo rate by 25 basis.
The bank said this decision would be effective from July 1.
The effective repo-linked lending rate (RLLR) for CC/OD customers stood at 8 per cent now, while for savings deposits above Rs 1 lakh the new rate would be 3 per cent, the SBI said.
The public sector lender has also announced that it would introduce repo-linked home loans from July, a move which would bring transparency in consumer loans. Repo rate is the rate at which banks borrow money from the RBI in case of shortage of funds.
"We will introduce repo-linked home loans from July 1," SBI said in a statement.
The announcement came after the Reserve Bank of India cut the repo rate by 25 basis points to 5.75 per cent in its bi-monthly policy meeting on Thursday, taking it down to a nine-year low since July 2010, amid sagging economic growth, global uncertainty and a sharp decline in crude oil prices.
So from July 1, the home loan seekers will have the option to take SBI home loans pegged to the RBI repo rate, while the bank will continue to offer home-loan products linked to the marginal cost of lending rate (MCLR), said PK Gupta, Managing Director, SBI.
"This is a different product. It is linked to repo and at a larger tenure than the normal home loan. The rate for a Rs 75-lakh home loan comes to 8.40%, compared with 8.55% on the existing home loan," the Economic Times quoted Gupta as saying.
"However, the tenure under the new product will be more and can go up to 35 years, compared with 30 years we offer now because customers have to pay a 3% outstanding amount plus interest every year," he said.
As of now, SBI offers home-loan products linked to the marginal cost of funds at 8.55 per cent.
SBI was the first bank to link its savings deposits rates and short-term loans to the central bank's policy rate which is used for setting the broader cost of debt in the economy. The idea was to ensure faster monetary transmission since the interest rate applicable these products will change automatically every time the RBI hikes or lowers its repo rate.
Earlier in March, the SBI had linked all CC accounts and ODs with limits above Rs 1 lakh to the repo rate, plus a spread of 2.25 per cent. For account balance above Rs 1 lakh, it had set its savings deposit rates to 2.75 per cent below the RBI's repo rate.
(With PTI inputs)
Edited by Chitranjan Kumar