State Bank of India on Friday slashed interest rates on term loans, agriculture loans and loans to small and medium enterprises (SMEs) by 50-350 basis points (bps), or 0.5-3.5 percentage points, effective June 1.
State Bank of India on Friday slashed interest rates on term loans, agriculture loans and loans to small and medium enterprises (SMEs) by 50-350 basis points (bps), or 0.5-3.5 percentage points, effective June 1.
The move, coming days ahead of the Reserve Bank of India’s policy meeting, will provide some relief to customers in these categories at a time of slowdown, the bank said.
But analysts see it as a bid to align rates with the market.
“SBI’s rates were higher than the market rates in these categories. So, basically, they have just realigned their rates with the market,” said Vaibhav Agrawal, vice-president (research), Angel Broking.
As per the changes announced, the tenor premium on term loans has been reduced by 40-100 bps, while customers with external credit rating of investment grade and above, along with the bank’s threshold internal credit rating, have a concession of 25-100 bps.
For agriculture segment borrowers, rates have been reduced by 75-350 bps to sustain growth in the sector. On the other hand, borrowers in the direct and indirect agriculture segment with limits between Rs25 lakh and Rs100 crore, will be offered finer rates of interest, to improve credit flow to the priority sector.
SBI has also introduced a separate interest rate structure for borrowers with a cover from Credit Guarantee Fund Trust for Medium and Small Enterprises, with limits up to `1 crore. This will help in encouraging SME borrowers to obtain guarantee cover for their loans.
The base rate remains untouched at 10%. “We are awaiting RBI’s announcement on June 18 before further action is taken on the base rate,” said A Krishna Kumar, managing director and group executive (national banking).
So do rates on retail loans, loans sanctioned under specific schemes and export credit.
“We are not touching the retail segment right now because in the last two or three months, we have already reduced rates on education, auto and housing loans. In home loans, for example, our (effective) rate of interest is at 10.50%, which is very close to our base rate,” said Kumar.
Further, SBI will remove all inter core banking charges, he said. “We have got the approval of our board on Thursday… So remittances between one branch and another (within SBI) will not have any charges.”
On the flipside, the heavy discounts could well take a 10-15 bps toll on SBI’s net interest margin (NIM), Kumar conceded, but said the bank will record an NIM of 3.75% for the April-June quarter as per its earlier guidance. NIM in the quarter ended March had come in at 3.98% (3.07%).
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