State Bank of India, India’s largest bank, has cut fixed deposit rates by 0.20-0.25% in some tenures. The new rates would be effective from September 10, 2019. This is the third time SBI has cut rates in the last two months, sharply cutting the interest income of FD holders. SBI reasons that the cut in FD rates is due to lowering of borrowing rate i.e. MCLR (Marginal Cost of Lending Rate).
Retail deposit rates drop
First, let us tell you how much interest rate reduction has happened. The new rates of FD interest will be made applicable to fresh deposits and renewals of maturing deposits. We are first looking at the FD rates for retail domestic term deposits i.e below Rs 2 crore.
In the 180 to 210 days tenure, the FD rate has been lowered from 6% to 5.8% down by 0.20% or 20 basis points.
In the 211 days to less than a year tenure, the FD rate has been cut from 6% to 5.8%, down by 20 basis points.
In the 1 year to less than 2 years tenure, the FD rate has been reduced from 6.7% to 6.5%, down by 20 basis points.
In the 2 years to less than 3 years tenure, the FD rate has declined from 6.5% to 6.25%, down by 25 basis points.
Note: The interest rate payable to SBI Staff and SBI pensioners will be 1.00% above the applicable rate. The rate applicable to all Senior Citizens and SBI Pensioners of age 60 years and above will be 0.50% above the rate payable for all tenors to resident Indian senior citizens i.e. SBI resident Indian Senior Citizen Pensioners will get both the benefits of Staff (1%) and resident Indian Senior Citizens (0.50%).
Below we have tried to illustrate how a person, below 60 years of age and non-SBI staff, will be affected due to FD interest rate reduction. We have assumed the person has Rs 10 lakh in SBI FDs. The impact of the latest cut, effective September 10, 2019, is in the range of Rs 1172 to Rs 8915. If you include the previous FD rate cut (those rates were effective from August 26, 2019), the impact of the two rate cuts for the applicable tenures is Rs 2640 to Rs 16,090. The impact on senior citizens will be similar in nature. Senior citizens get 50 basis points more than ordinary citizens, but the cut in rates affects all. For the below calculation, we have taken the upper day limit for a tenure. For instance, the interest has been calculated for 210 days in the 180-210 days tenure. Similarly, for 211 days to less than a year tenure, we have taken 364 days (less than a year) for interest calculation.
The interest rates on “SBI Tax Savings Scheme 2006(SBITSS)” Retail Deposits and NRO deposits will be aligned as per the proposed rates for domestic retail term deposits.
Bulk deposit rates drop
Next, we look at the downward revision in interest rates on domestic bulk term deposits i.e. Rs. 2 crore and above. The new rates are also effective from September 10, 2019.
The SBI bulk deposit rates have been cut for all possible tenures. The FD rate cut is between 10 bps to 20 bps. The impact of the latest cut, effective September 10, 2019, is in the range of Rs 2,452 to Rs 5.2 lakh.
Additional Read: FD Rates On A Downward Spiral With SBI Cutting Rates By 50 Bps More; Others May Follow Suit (Aug-2019)
Borrowing rates drop
As a saver, cut in FD rates are bad news. However, the good news is that State Bank of India has reduced its MCLR (Marginal Cost of Funds based Lending Rate) by 10 basis points. This too will come into effect from September 10. MCLR is important for borrowers. If the MCLR falls, loans become cheaper.
Do remember that while SBI’s floating rate home loans are typically linked to its one-year MCLR, pay attention to the reset clause of your floating rate loan. If the reset clause is 1-year, then the loan rate will not change within 12 months.
The one-year SBI MCLR will be 8.15% per annum with effect from September 10. This is the fifth straight cut in MCLR from SBI so far in FY 2019-20. Other banks are likely to follow suit and could cut their respective MCLR as well as FD rates.
Tenor-wise MCLR effective from 10th September 2019 will be as under: