The SBI on Tuesday said its 50 basis points (bps) rate cut on savings accounts can lead to savings of Rs 2,000 crore over one year in case status quo is maintained and that there won't be huge outflows due to rate cut.
"If everything remains the same, if there are no further changes and conditions remain the same as today, over a 12-month period it can result in Rs 2,000 crore in savings for us," State Bank of India (SBI) MD Rajnish Kumar told BTVi in an interview.
The largest public lender in India on Monday announced a rate cut of 50 bps to 3.5 per cent for savings accounts with deposits below Rs 1 crore. Saving account deposits above Rs 1 crore will continue to attract 4 per cent interest.
He said the bank has Rs 9.4 lakh crore in its savings deposits, of which 90 per cent accounts have deposits below Rs 1 crore.
The SBI official said that as far as two-tier rate structure is concerned, bulk deposits of Rs 1 crore and above are mostly in state government accounts.
Some government departments are allowed to keep funds for developmental activities in interest-bearing accounts.
"These accounts cater to the underprivileged sections. So, the idea was that we should not touch their interest rate. For the rest, because the real interest rates have become very high, it was high time we cut the interest rates on savings," he said.
The SBI had maintained 3.5 per cent interest for savings accounts during 2003-11. In 2011, it was increased to 4 per cent for all savings accounts.
Rajnish Kumar said the interest rate cut is not likely to result in any huge outflow as the SBI has the advantage of scale and is present in every neighbourhood.
"Our market share in deposits is 73 per cent. A savings account is a utility account. The convenience and safety considerations are a priority on the customer's mind. So I am not expecting any huge outflow," he said.
The SBI has 24,000 branches, 50,000 customer service points, and 60,000 ATMs.
"We have the advantage of scale. But certain actions are inevitable. Even borrowers or depositors have to keep in mind the rate is not fixed forever, it will keep changing," the SBI official added.
Rajnish Kumar said cutting Marginal Cost of funds-based Lending Rate (MCLR) would not have been a wise step.
"Sixty per cent of funds in savings accounts has gone back into the system post-demonetisation. When there are talks of softening the interest rate, when credit growth is muted, increasing MCLR would not have been a very wise step," he said.
He said the bank would again review the costs.
"When we meet in August's last week, we will again take stock of our costs. In six months, we have cut term deposit rate seven times; MCLR cut of 90 bps was pretty sharp. In these circumstances, the maneuverability to further cut rates are very limited," he said.
With the Reserve Bank of India to decide on the monetary policy on Wednesday, he said that a 25 bps cut was expected though it will not have much impact on the SBI.
"A 25-bps cut is likely tomorrow (Wednesday). If no cut, or if there is a 50 bps cut, then it will be a big surprise," he said.
"In banks in India, the emphasis is more on retail deposits. We don't get impacted that much by change in repo rate. The wholesale market gets more impacted by repo rate," he added.