SBI cuts savings account rate to 3.5% on deposits up to Rs 1 cr, introduces 2-tier rate system

State Bank of India, the country’s largest bank, has cut the interest rate on savings bank accounts with balance below Rs 1 crore to 3.5 percent from 4 percent, the bank said in a notification to the Bombay Stock Exchange on Monday. The interest rate offered on those accounts with more than Rs 1 crore balance remains unchanged at 4 percent. The move will result in a two-tier interest rate structure for savings bank accounts. The new rate is applicable from today (31 July). “The decline in the rate of inflation and high real interest rates are the primary considerations warranting a revision in the rate of interest on savings bank deposits,” the bank said in the communication to the stock exchange. [caption id=“attachment_3876751” align=“alignleft” width=“380”]  Reuters[/caption] “The revision in saving bank rate would enable the bank to maintain the MCLR at the existing rates, benefitting a large segment of retail borrowers in SME, agriculture and affordable housing segments,” SBI said in the statement, explaining the rationale behind the move. “SBI had to cut saving interest rates as real interest rate was very high. We had two options – either to raise MCLR or cut savings bank interest rates,” Rajnish Kumar, MD of SBI, said in a conference call after the rate cut announcement. Of the total 9 lakh savings bank accounts it has, about 90 percent have below Rs 1 crore deposits. Kumar also said he doesn’t see any major outflows from from savings accounts due to the rate cut. The impact of the rate cut on the lending rate would be seen towards the end of August. The move by the bank comes ahead of the Reserve Bank of India’s third bi-monthly monetary policy statement to be issued on 2 August. There is wide expectation that the central bank’s Monetary Policy Committee may cut policy rates this time, after holding the rate for four straight meetings. According to the press release, the bank has cut the MCLR by 90 basis points from 1 January 2017 after it got strong inflows into its accounts after the demonetisation of Rs 500 and Rs 1,000 notes.