After deposit rate cuts in May, SBI now slashes lending rates by 25-75 bps

Move will have to be matched by other lenders at a time when margins are under pressure due to extended loan moratorium and a ruling due on whether they can charge interest on the moratorium after all

State Bank of India | Lending Rates | MCLR rates

Anup Roy  | 

State Bank of India (SBI) gave huge relief to its customers on Monday by sharply reducing lending rates by 25-75 basis points (bps). This will have to be matched by other lenders at a time when margins are under pressure due to extended moratorium on loans and a ruling due on whether they can indeed charge interest on the moratorium.

The lending rate cuts come after the country’s largest lender slashed its interest rates on retail term deposits by up to 40 bps across all tenors, from May 27. In fact, the bank reduced its deposit rates twice in May, as it dealt with the challenge of managing a large pool of surplus funds, in the absence of robust credit demand. It had revised deposit rates by 20 bps (effective May 12).


Nonetheless, it is a reprieve for economically stressed retail customers who have seen salary cuts, and even job losses due to a possible contraction in economic growth.

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SBI on Monday passed on the entire 40-bps rate cut to its retail customers who had opted for loans linked to the external benchmark-linked lending rate (EBR) and repo-linked lending rate (RLLR).

All fresh retail loans given from October 1 are automatically under EBR and RLLR, while the bank had given customers the option to shift their home and retail loans, linked to the marginal cost of funds-based lending rate or base rate, to such EBRs.

Earlier, effective April 1, SBI had reduced its EBR and RLLR by 75 bps. In less than three months, the rates on such loans fell by 115 bps, exactly shadowing the repo rate cuts by the Reserve Bank of India.

SBI also reduced its MCLR for the 13th consecutive time by 25 bps, and reduced its base rate by a sharp 75 bps. Loans taken after April 1, 2016, are linked to the MCLR, which is largely benchmarked with money market rates. Before the MCLR, loans were given at the base rate. SBI’s one-year MCLR now stands at 7 per cent, and the base rate at 7.4 per cent from June 10. From July 1, the EBR will be at 6.65 per cent and the RLLR at 6.25 per cent, SBI said.

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