Home / Money / Personal Finance /  SBI large savings accounts to fetch lower interest rate, short-term loans get cheaper

The interest rate offered by SBI on large savings accounts will go down from today, after Reserve Bank of India cut its repo rate by 25 basis points to 5.75%. Similarly, SBI will also bring down the interest charged on short-term loans like overdraft and cash credit facility.

From May 1, SBI had moved to a new interest rate regime on large savings account deposits as well as short-term loans. Under this mechanism, whenever there is a change in RBI repo rate, the change gets automatically reflected in these SBI products.

SBI has linked its interest rate on savings account with balance above 1 lakh and short-term loans like overdraft and cash credit facility to Reserve Bank of India's (RBI) repo rate. This has been done for better transmission of RBI’s policy rates into the banking system.

Also read: RBI delivers another rate cut, shifts policy stance to 'accommodative'

On savings accounts with deposits above 1 lakh, SBI is offering interest rate of 275 bps below repo rate from May 1. This means effective interest rate on large SBI savings accounts will get automatically changed to 3%.

SBI savings accounts with deposits below 1 lakh will continue to fetch 3.5% interest rate. This comprises about 95% of total SBI savings account holders.

Other products where SBI has linked repo rate are short-term loans such as cash credit accounts and overdrafts with limits above 1 lakh. All cash credit accounts and overdrafts with limits above 1 lakh is linked to the RBI's repo rate, plus a spread of 2.25%—amounting to 8%.

SBI charges a risk premium on these loans, over and above the floor rate of 8%, based on the risk profile of the borrower.

Analysts say that this rate mechanism is "transparent" and that can be quickly transmitted when there is a regulatory change.

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