State Bank of India (SBI), the country's largest lender, on Wednesday linked loan and deposit rates to the repo rate of Reserve Bank of India (RBI).
As a result, customers will be able to get loans at cheaper rates.
Most banks generally link loan interest rates to the marginal cost-of-fund-base lending rate (MCLR). However, the SBI has decided to link the repo rate to loan interest.
The interest rate has been cut by 10 basis points for home loans of up to Rs 30 lakh. It is currently in the range of 8.6 to 8.9 per cent.
But the country's largest bank has also reduced the interest rate on savings accounts. The interest rate with a balance above Rs 1 lakh will be 2.75 per cent lower than the RBI's repo rate, which currently stands at 6 per cent.
That means the customers will earn an interest of 3.25 per cent. The interest rate may move up or down depending on what stance the RBI takes in bi-monthly monetary policy meeting.
Those with less than Rs 1 lakh in their savings accounts will continue to earn interest at the rate of 3.5 per cent.
The SBI was earlier paying interest of 3.5 per cent for savings bank deposits up to Rs 1 crore and 4 per cent for deposits above Rs 1 crore.
The new changes have been made to ensure faster monetary policy transmission.