SBI today cut interest rate on savings bank account deposits up to Rs 1 crore by 0.5 per cent to 3.5 per cent, lowest in six years, a decision that will impact 90 per cent of its customers.
The bank's decision comes two days ahead of RBI's monetary policy meet and is likely to trigger rate war among peers.
SBI's savings bank account base is of around Rs 9 lakh crore. The country's largest lender however will continue to pay 4 per cent interest on savings bank accounts with deposits of above Rs 1 crore, it said in a statement.
The two-tier savings bank account interest rate comes into effect from today. The bank's savings account rate was 3.5 per cent during March 2003 to May 2011 for all savings bank account customers.
The reduction, SBI said, is "on the back of large inflows in savings and current accounts during demonetisation period in November & December 2016.
"The decline in the rate of inflation, high real interest rates and the expected softening of interest rates are the other considerations warranting a revision in the rate of interest on savings bank," it said.
Later, talking to reporters in a conference call, SBI Managing Director Rajnish Kumar said the 4 per cent interest rate on savings bank accounts has remained static since 2011, although the overall interest rate has come down and also the retail inflation.
The rationale for the rate cut, Kumar said, is that the real interest rates are really high and "there was no choice for the bank but to bring down the savings bank account interest rate...We have been cutting the term deposit rates and were watching for a right time (to cut rates)."
Under the current circumstances, Kumar said the choice before the bank was to either raise the marginal cost of lending rates (MCLR) or cut savings bank interest rates.
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