Federal Bank to link savings deposit rate to external

South-based Federal Bank on Saturday announced linking of its savings deposit rate to external benchmarks, becoming the first private sector lender to initiate such a move. The Reserve Bank has been cajoling banks to move their interest rates to external benchmarks like its repo rate at which it lends to the system, in order to accelerate the transmission of its policy actions.

Federal Bank said from September 1, its savings deposits up to Rs 2 lakh will earn interest in tandem with the repo rate. At present levels, deposits of up to Rs 1 lakh will earn an interest of 3.50 percent, while the same of over Rs 1 lakh, but under Rs 2 lakh will earn 3.25 percent, an official statement said.

The repo rate, which has been reduced by 1.10 percent in 2019 in order to boost growth, stands at 5.40 percent at present. It can be noted that re-pricing of the deposit rates is generally considered to be the first step towards the adoption of the same on the lending side.

The private sector lenders have been so far apprehensive about adopting an external benchmark for pricing their loans...