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SBI reduces MCLR after RBI repo rate cut, more to follow

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SBI reduces MCLR after RBI repo rate cut, more to follow

SBI (State Bank of India), the biggest lender in India, has officially confirmed a reduction in its MCLR (marginal cost of funds based lending rate) to the tune of 5 basis points. This will be valid for diverse tenors and will be effective from the 10th of April, 2019 as per reports. SBI has lowered interest rates by 10 basis points as well for home loans up to Rs. 30 lakhs in a bid to stimulate the affordable housing sector. The interest rate that applies for home loans lower than Rs. 30 lakhs varies from 8.6-8.9% per annum.

Here are some other key factors worth keeping in mind:

  • The 1 overnight MCLR has been lowered to 8.15% from 8.2%
  • The 1 month MCLR has also been lowered from 8.2% to 8.15%
  • The 3 month MCLR is now 8.2% as compared to 8.25% earlier
  • The 6 month MCLR has come down to 8.35% from 8.4% previously
  • The 1 year MCLR rate has lowered to 8.5% from 8.55% previously
  • The 2 year MCLR at SBI is now 8.6% as compared to 8.65% earlier
  • The 3 year MCLR rate has come down to 8.7% from 8.75%

State Bank of India (SBI) has also tied the savings bank rates to the repo rate and hence savings rates will be revised from the 1st of May, 2019, as per reports. This will stand at 3.5% per annum for balances going up to Rs. 1 lakh. For balances more than Rs. 1 lakh, the interest will be 3.25% per annum.

The spread for savings bank rates is 2.75% and 2.25% is the spread for the rate on short-term loans. The repo rate has been slashed by the Reserve Bank of India (RBI) for two times in succession this year and a cut of 50 basis points has been implemented likewise. However, banks have not been transmitting the full benefits to their borrowers on account of stretched liquidity. The RBI has been directing banks to fix these issues and is already preparing new regulations for swifter transmission of policy rate changes to customers.

It’s not just SBI alone; even Bank of Maharashtra has lowered its MCLR by 5 basis points for diverse tenors with effect from the 7th of April, 2019. The 1 year MCLR at Bank of Maharashtra now stands at 8.70% and was 8.75% previously. HDFC Bank has already lowered its MCLR for loans across 2 and 3 year tenors to the tune of 5 basis points respectively. The MCLR rates for these tenors stand at 8.85% and 9% respectively. The new rates have already been implemented from the 7th of March, 2019, onwards. The MCLR has remained unchanged for overnight (8.35%), 1 month (8.4%), three month (8.45%), six month (8.55%) and 1 year (8.75%) tenors.

Are more rate reductions on the cards?

It is difficult to say really in the present scenario since SBI has lowered rates, HDFC has previously lowered rates and Bank of Maharashtra has followed suit. Several other lenders have lowered MCLR rates sometime earlier after the previous repo rate cut by the RBI and hence may wait a while before repeating any such rate cut as per experts. Several HFCs (housing finance companies) and banks are having a tough time in swiftly transmitting cuts in interest rates to their customers on account of factors like tighter levels of liquidity and higher yields from bonds along with deposit rates that continue to remain sticky.

Experts feel that many banks are not slashing rates since there has to be a reduction in deposit rates as well. However, this is easier said than done in the present scenario where deposit growth is slower and several homes have already shifted to investing in mutual funds and other equity based avenues. For taking care of credit needs, many banks are now going for corporate deposits at rates which are comparatively higher. Top lenders like Punjab National Bank (PNB), Bank of Baroda, ICICI Bank and Union Bank of India have already lowered MCLR to the extent of 5-10 basis points within a period of 40 days post the earlier repo rate cut of the RBI. As a result, these banks may go slow on rate cuts at present.

However, IDBI Bank has become the latest bank to join the bandwagon in terms of offering a cut in MCLR rates. IDBI Bank has lowered its lending rates across most of its tenors by 5 basis points. The new rates will be effective from 12th of April, 2019, as per reports. The new 1 year MCLR will be 9% and the 6 month and 2 year MCLR rates will be 8.60% and 9.25% respectively. The 1 month lending rate has been lowered to 8.15% which indicates a drop of 10 basis points. The MCLR calculation is done on the basis of the marginal cost of funds for the bank or the interest rate at which they are borrowing money and also the equity return and negative carry-on account of the CRR (cash reserve ratio). The final rate of interest is worked out after adding a spread to the benchmark figure. For the last fiscal, Indian banks had steady disbursal growth in double digits and credit increased by 13.24% as per the reports of the RBI and touched Rs. 97.67 lakh crore while deposits increased to Rs. 125.72 lakh crore which indicates growth of 10.03%.

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