BL Research Bureau
Depositors who have been feeling the heat of the recent steep cuts in deposit rates can find themselves in a stickier spot. In a bid to cushion its margins from the blow of adopting an external benchmark — repo rate — to price its floating-rate MSME, housing and retail loans, SBI has trimmed the interest rate on its savings deposits (of up to ₹1 lakh) to 3.25 per cent from 3.5 per cent, effective November 1, 2019.
With the country’s leading bank making the first move on savings deposit rate, others are likely to follow suit, which will pinch depositors more in the near term.
Why the move
Banks that have been reducing lending rates this year have been facing pressure on their spreads (yield on advances, less cost of funds). While the weighted average lending rate on fresh loans has fallen by 29 basis points, weighted average deposit rates have fallen by a lower 4 basis points. Some banks have cut deposit rates steeply in certain buckets to safeguard their spreads or margins. But, overall, most banks have been facing margin pressure.
The pressure will only get accentuated in the coming months, with the RBI’s mandate to banks to link their new floating-rate personal, retail and MSMEs loans to an external benchmark, effective October 1. Since loans get re-priced faster than deposits, banks’ margins would come under further pressure.
In a bid to ease the pain, SBI has…