On Monday, the State Bank of India (SBI) has announced that it has decided to reduce the marginal cost of lending rate (MCLR) by 10 basis points across all maturities ahead of the festive season. The one-year MCLR, to which all retail lending rates are linked to, has been cut from 8.25 % to 8.15%.

This is SBI’s 5th consecutive cut in MCLR in the fiscal year 2019-20. According to the bank, the changes will come into effect from September 10.  

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Interest rates on term deposits reduced 

SBI has also announced a reduction in the term deposit rates. While retail term deposit rates would be lowered by 20-25 basis points, the bulk deposit rates will be reduced by 10-20 basis points. The deposit rates for retail customers with maturities under one year have been slashed by 20 basis points to 6.3%. Moreover, the deposits with a maturity between one and two years have been reduced by 20 basis points to 7%. On the other hand, deposits with the maturities between two and 10 years would be priced at 6.75% in contrast to the earlier figure of 7%. 

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Lowering the rates a consequence of RBI’s actions 

This is SBI’s second rate cut announcement after the Monetary Policy Review of the Reserve Bank of India (RBI) in August. When the RBI’s Monetary Policy Committee cut the repo rate by 35 basis points on August 7, its fourth such reduction in 2019, SBI followed suit. On the same day, it lowered its MCLR by 15 basis points.

Similarly, SBI last cut its deposit rates on August 23. At that time, the retail deposit rates were cut by 10-50 basis points and the bulk deposit rates were cut by 30-70 basis points.  

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SBI’s rationale for the decision 

SBI, India’s largest lender, attributed the falling interest rate scenario and surplus liquidity for the realignment of its interest rate on term deposits. The government has been engaging with the RBI to push for rate cuts. The RBI too has been emphasizing on the need for the commercial banks to pass on the benefits of the interest rate cuts to the consumers. A few days earlier, India’s Central Bank asked banks to link all new floating rate personal, retail and micro, small and medium enterprises (MSME) loans to external benchmarks from October 1.   

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(With PTI inputs)