A day after State Bank decided to link its short-term loans and large savings deposits rates to the repo rate, chairman Rajnish Kumar Saturday said loans and deposits below Rs 1 lakh will continue to be linked to the present MCLR to protect retail customers from market vagaries. In a first, the nation's largest lender had Friday said from May 1, it would link its savings accounts with deposits over Rs 1 lakh and all cash credit accounts and overdrafts or short term loans with limits above Rs 1 lakh or short-term loans, to the repo rate, which currently is at 6.25 percent.
At present some banks like Kotak Mahindra, Yes Bank, RBL Bank and Singaporean lender DBS Bank pay higher interest to the tune of 5-6 percent on savings deposits regardless of the balance, while large players like SBI and other state-run lenders, and private players like HDFC Bank, ICICI Bank and others pay 4 percent per annum. From May 1, the savings bank deposits with balance above Rs 1 lakh will earn an interest of 3.5 percent, 2.75 percent lower than the repo rate and lower amounts in balance will earn 4 percent.
The bank has also linked all cash credit accounts and overdrafts with limits above Rs 1 lakh to the repo rate plus a spread of 2.25 percent. "The category which we have linked to the external benchmark is the best category--all cash credits and overdrafts above Rs 1 lakh. Here also, for accounts with Rs 1 lakh and below, we've kept out of the purview as we believe that retail customers should not be forced to suffer from the market vagaries," Kumar told reporters on the sidelines on event organised by Indian Chamber of Commerce.
He also said, across the world, retail loans are not left to the market forces alone when it comes to pricing and that it is mostly corporate accounts that are left to the market conditions. He also said the move is in accordance with the RBI guidelines on the MCLR (marginal cost of fund-based lending rates) and other loan pricing norms. Kumar said SBIs retail loans are currently priced as per MCLR and the system is working well and will continue to be remain so.
"Retail loans will continue to be linked to MCLR for the time being. If the loan is long-term in nature, you cannot re-price it very frequently...that way MCLR is a good solution," Kumar said. He said by linking savings bank deposits rate to the repo rate, MCLR will get adjusted automatically as and when there is a change in the repo rate. He, however, said MCLR will not move by 25 bps if there is a similar reduction by the RBI in the repo rate. "It will depend on what portion of our savings banks gets repriced and its consequent impact on MCLR. To that extent the MCLR will get repriced," Kumar said. Currently, the bank is offering a rate of 3.50 percent for savings bank deposit rates up to Rs 1 crore, and 4 percent above Rs 1 crore. As much as 33 percent of its savings account-holders will get the benefit of the new pricing system, the bank said. On the thorny issue of swift monetary transmission, Kumar said liabilities are mostly fixed for banks and transmission on the asset side alone cannot happen.
"Transmission cannot happen only on one side. If transmission has to happen it has to happen on both sides and that is why SBI came out with this solution that the deposits savings bank account with 1 lakh and above, we will link it to repo rate and all the working capital loans which are theoretically payable on demand. Talking about NCLT clearing ArcelorMittal's Rs 42,000-crore bid for Essar Steel rejecting the Rs 54,389 crore offered by a company run by the Ruias of Essar group, Kumar said they are awaiting the final order. "The written order is yet to come. But our stand as well as that of the committee of creditors is that we abide by the order. The final process of the resolution of Essar Steel began with the NCLT order yesterday," he said. Kumar said in the case of Jet Airways, whatever is the resolution plan, it will be implemented if all the conditions by all stakeholders--Naresh Goyal, lenders, Etihad and approval from the government, are met.