More PSU banks follow SBI; link deposit, loan rates to repo

Following SBI suit, more Public Sector Banks (PSUs) have announced linking their lending and deposit rates to the Reserve Bank of India's (RBI) repo rate to enable faster transmission.

The PSU banks which have announced the decision are Syndicate Bank, Bank of India, Union Bank and Allahabad Bank.

While, Syndicate Bank made the announcement on Friday to link its deposits and loans to the repo rate, Bank of India, Union Bank and Allahabad Bank also declared that they are undertaking the arrangements to facilitate the launch of similar products.

Also Read: UCO, Allahabad slash MCLR after RBI cuts repo rate

"Housing, vehicle and consumer loans will now be offered at the basis of a repo-linked rate. With the change, the housing loans will start from repo plus 2.9 per cent at 8.3 per cent," Syndicate Bank said in a statement.

The saving bank deposits of over Rs 25 lakh will also be based on the repo rate, the bank added.

Bank of India said another dimension of rate transmission process is by way of offering repo linked lending rate to select customer segments, including personal loans.

"We are working out the necessary modalities in this regard so as to launch such products during the current month," Bank of India said.

Union Bank said that to provide better interest rate transmission it shall soon link its housing and vehicle loan portfolio to repo rate from the current marginal cost of funds based lending rate.

Also Read: FM Sitharaman to meet heads of public and private sector banks on Monday

"The bank will be exploring to develop products of both assets and liabilities linked with external benchmark to transmit the benefits of rate cut to our customers shortly," Allahabad Bank managing director SS Mallikarjuna said.

Another state-owned lender Indian Bank too said its home and vehicle loans will inked to the repo rate from Aug. 15.

These loans will carry interest that changes with the repo rate and thus facilitate quick transmission of the policy rate and will be effective from Aug. 15, Indian Bank managing director Padmaja Chunduru said.

The move to link the deposit and lending rates by these four lenders come even as the Reserve Bank has not mandated them to do so.

Also Read: Vijay Mallya offers again to pay back entire debt to banks

In May, SBI had said it would link its short-term loans and large savings deposits rates to the repo rate and its home loans from July.

The nation's largest lender linked its savings accounts with deposits over Rs 1 lakh and all cash credit accounts and overdrafts or short-term loans with limits above Rs 1 lakh, to the repo rate. In the post policy meeting with the reporters, Reserve Bank of India governor Shaktikanta Das had said the central bank recognizes that banks are just about coming out of their NPA mess amidst slow deposit growth.

"So, administratively, we did not want to mandate it (external benchmarking) at that particular time; we are monitoring the situation and will take whatever steps are required to ensure better transmission.

"It is better to allow the market forces to play. Wherever the regulatory interventions are required, we will take necessary regulatory measures," he had told reporters Thursday after announcing a steep 35 basis points repo cut to a nine- year low of 5.4 percent.

Also Read: Uday Kotak moots new legislation to reform public sector banking

(With inputs from PTI)