Cuts the rate 30 bps to 8.65%; move to pressure rivals HDFC Bank and ICICI to follow suit
State Bank of India (SBI) has reduced its base rate by 0.30% to 8.65%, which will benefit its 80 lakh customers, who are largely retail customers.
Additionally, the bank has extended its ongoing waiver on home loan processing fees till March 31, 2018, for new customers keen on buying a home -- clearly trying to attract customers to shift from other banks. It has also reduced rates for customers who are linked to the old Benchmark Prime Lending rate (BPLR) by 0.30% to 13.40%
The cut in base rate is likely to nudge peers HDFC Bank and ICICI Bank, which have their base rates at 8.85%, to realign their rates. The cut in base rate follows the lowering of its deposit rate in November.
The one year deposit rate for SBI is at 6.25%, while for HDFC Bank and ICICI Bank it is at 6.75%. Whether these banks will also realign their deposit rates before cutting their base rates depends on the liquidity cushion they have on their books.
Praveen Kumar Gupta, managing director, retail and digital banking, SBI, told DNA Money, "The reduction in rates follows the reduction in the deposit rate we undertook in November by 0.25%. It will benefit our retail customers who are yet to move to the MCLR. Most of our corporate clients have shifted to MCLR due to the annual reset on their loans. Whether the lending rates will fall further will depend on the pace of credit growth. Much of the deposits garnered post the demonetisation has been utilised."
In October, the Reserve Bank of India had said, "Arbitrariness in calculating the base rate and MCLR and spreads charged over them has undermined the integrity of the interest rate setting process. The base rate and MCLR regime is also not in sync with global practices on pricing of bank loans."
But banks are caught in a tight bind, which would get more complicated if credit growth picks up. The deposit growth is slowing down as mutual funds are taking away the retail savings.
The surplus deposits that banks had collected post the demonetisation have run off. The latest RBI data shows that the year-on-year credit growth is at 9.6%, while the year-on-year deposit growth for the same period is only 3.3%. In actual value terms, the deposit growth during the fortnight that ended on December 8, 2017 was Rs 55,500 crore while the credit growth was Rs 65,700 crore.
Base rate revisions are undertaken every quarter while MCLR revisions take place at the start of the month. A senior banker said, "RBI has been talking about banks keeping the base rate static. So whenever possible banks may bring down their base rate as well."
"The reduction in base rate is a new year gift to the bank's loyal customers as a large number of consumers who have their loan linked to base rate will be benefited by decrease in rates. This reduction is part of the bank's efforts to ensure transmission of reduction in the policy rates in the recent past. Approximately 80 lakh customers will be benefited by this move," Gupta said.
NEW YEAR GIFT
- SBI has extended its ongoing waiver on home loan processing fees till March 31, 2018, for new customers keen on buying a home
- It has also reduced rates for customers who are linked to the old Benchmark Prime Lending rate by 0.30% to 13.40%
- The cut in base rate follows the lowering of its deposit rate in November.
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