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HDFC Bank and Bank of Baroda reduce lending rates; others to follow?

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HDFC Bank and Bank of Baroda reduce lending rates; others to follow?

As per the latest reports, Bank of Baroda and HDFC Bank have cut their MCLR (marginal cost based lending rate) rates for various loan tenors to the tune of 5 and 10 basis points respectively. HDFC Bank has already lowered its MCLR (marginal cost based lending rate) for the 2 and 3 year loan tenors by 5 basis points. These now stand at 8.85% and 9% for 2 and 3 years respectively as per reports. The biggest private sector lending institution in India in terms of market capitalization, HDFC Bank has finally lowered its rates post two consecutive rounds of hikes in rates in December 2018 and January 2019.

The MCLR (marginal cost based lending rate) was increased by 5 basis points in January 2019 for the 1, 2 and 3 year tenors of loans. The MCLR rates became 8.75%, 8.90% and 9.05% respectively after the rate hike in January this year. The rates were hiked by 5 basis points for 1 and 3 year tenors along with 6 month tenors in December 2018. Yet, even after the lower 2 and 3 year loan tenor MCLR rates, HDFC has kept its rates unchanged for the overnight (8.35%), one month (8.4%), 1 year (8.75%), six month (8.55%) and three month (8.45%) tenors. Earlier, the MCLR rates were 9.05% and 8.9% for the 3 and 2 year loan tenors respectively which have now been lowered, thereby bringing some relief to customers.

Advances increased overall for HDFC Bank by an impressive 23.8% on a year on year basis to touch close to Rs. 7.8 lakh crore as of the 31st of December, 2018. Domestic retail loans witnessed 24% of growth on a year on year basis and there was 24.1% of growth in the domestic wholesale loans category as well. The ratio was 55:45 between retail and wholesale loans in the overall loan mix based on the Basel-II classifications as per the reports issued by the bank. HDFC Bank has also been steadily gaining overall share of the market in segments in the retail lending space including automobile loans and personal loans alike. There is high liquidity for the bank and this will help it keep its growth figures steady in the near future as per experts along with its solid market capitalization.

Bank of Baroda (BoB) has also lowered its MCLR by 10 basis points for the overnight, one month, three month, six month and one year tenors. These rates now stand at 8.25% for overnight tenors and 8.30% for one month tenors along with 8.40% and 8.60% for three month and six month tenors respectively. The MCLR rates for one year are 8.65%. These new rates have already been implemented from the 7th of March, 2019, as per reports. Bank of Baroda has posted steady growth in domestic loan products while its operations are also improving to a large extent as per experts. Market experts feel that Bank of Baroda should be witnessing further improvements over the next few years. The new move by Bank of Baroda will certainly make it less costlier to avail of home loans and several other loans like automobile loans. A majority of loans are benchmarked against the MCLR for a 1 year period after which the rates will be reset accordingly.

The cut in rates comes around a month post the cutting of the key lending rate by the RBI (Reserve bank of India) by 0.25%. The repo rate now stands at 6.25% after the cut by the RBI which expects inflation levels to remain within the range that has been targeted. Banks have been slow in transmitting the benefits of the rate cut to their customers and have been grappling with higher costs of credit on account of the huge pile-up of NPAs as per reports. PNB (Punjab National Bank) has also reduced its MCLR (marginal cost based lending rate) by 10 basis points for the overnight, three month, six month and one year tenors while the same durations will now see a cut in the MCLR by 5 basis points at Kotak Mahindra Bank. Allahabad Bank has also cut the MCLR by 10 basis points for all tenors sometime back.

ICICI Bank, the second biggest private lending entity in the country, has already lowered its MCLR for the one month, three month and six month tenors to the tune of 10 basis points. These rates now stand at 8.55%, 8.60% and 8.75% respectively as of December 2018 onwards. The total loans that were disbursed for the third quarter of FY19 were around Rs. 53,600 crore as per several reports across 230 loan accounts in comparison to Rs. 35,800 crore disbursed across 175 loan accounts in the third quarter of FY18.

Experts feel that banks have been lowering their rates after getting the desired push from the RBI and ultimately customers will benefit. Some feel that the cut in rates was not immediately transferred to customers and only 5-10 basis points are being reduced at the moment. Other experts feel that new customers applying for loans will benefit from the reduced rates and lower EMIs while existing customers will have to wait it out till the next reset dates for their loans. State Bank of India (SBI) has also lowered its home loan interest rates by 0.05% only a few days after the RBI policy announcement. These lower rates will be applicable for home loans up to Rs. 30 lakh.

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