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SBI increases lending, deposit rates

Spares Small Home Loan Borrowers, Makes Fixed Deposits Attractive



Amid a high interest rate scenario, the State Bank of India on Monday has brought some cheers for depositors and small home loan borrowers. While increasing the interest rate on fixed deposits (FDs) by 25 to 75 basis points (100 basis points is 1%), the bank insulated the small home loan borrowers from the hike in the lending rate by 100 basis points across the board.
While the interest rate on FDs between one year and three years has been increased by 50 basis points to 10%, that on three years to less than five years has been increased by 75 basis points to 9.75%. But, FD rate of 5 years to 10 years has been increased by only 25 basis points to 9.25%.
However, the five year FD is qualified for tax concession under section 80C. In this case, deposits up to Rs 1 lakh, will be deducted from your income before tax calculation. The Rs 1 lakh includes deposits in provident fund, insurance, mutual fund, children’s school fees and 5-year FDs in post office.
If you invest in five-year FD with a bank, you will save tax of Rs 30,900. However, the interest income earned on the amount will attract tax at the rate of 30.9%, including the education cess. The 9.25% return offered on five year FD by SBI is equivalent to around 14.75% pre-tax return, if your fall under 30% tax slab.
But, for less than five-year FDs, which are not qualified for the tax concessions, the post tax return will come down to around 6.75% under the same slab.That is why the interest rate offered by banks on five-year FD is lower than other tenures. ICICI Bank and HDFC Bank also offer 9.5% return on five-year FD.
SBI on Monday also increased its benchmark lending rate by one percentage point to 13.75%. This will lead to increased rates on new loans as well as on floating loans by one percentage point. But, the bank said that the new rates will not be applicable on the home loan up to Rs 30 lakh.
This means, interest rate on existing as well as new home loan up to Rs 30 lakh will remain unchanged.
The existing rate of home loan of the bank is 10.50%. The existing education loan borrowers will also not get hit by the hike. But, the new borrowers will have to pay the increased rate.
SBI has the largest portfolio of education loan. The existing interest rate on education loan up to Rs 4 lakh is 9% and that on beyond Rs 4 lakh is around 10.5%. The new rate will be one percentage point higher than this.
In the case of auto loan, the bank has restricted the increase up to 50 bps only. That means, the new auto loan will be available at around Rs 14.50%.
The bank said that the concessions to the small borrowers would benefit a large body of customers and would reduce the default rate.
The bank believes that its action would contribute to revival of these sectors, which have witnessed some strain recently and would enhance demand for credit.

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