SBI Reduces Lending Rate By 5 Basis Points Across Tenors

Nearly a week after the Reserve Bank of India cut its policy repo rate by 25 basis points, State Bank of India on Tuesday pared its benchmark lending rate by 5 basis points across all tenors, making loans in segments such as home and vehicles cheaper.

Further, to make housing loans more affordable, the bank has reduced the interest rate by 10 basis points on loans up to ₹30 lakh.

The 5 bps cut in the marginal cost of funds based lending rate (MCLR) across all tenors, with the benchmark one-year MCLR coming down from 8.55 per cent to 8.50 per cent, by SBI may encourage other banks to follow suit.

SBI’s lending rate cut will take effect from April 10. All rupee loans sanctioned and credit limits renewed with effect from April 1, 2016, are priced by banks with reference to the MCLR, which is the internal benchmark for such purposes.

The bank, in a statement, said the interest rate for housing loans below ₹30 lakh will range from 8.60 per cent to 8.90 per cent (from the existing rates of 8.70 per cent to 9 per cent).

In early March, SBI said that in order to address the concerns regarding rigidities in the balance sheet structure and quick transmission of changes in RBI’s policy rates, it will link Savings Bank (SB) deposits and short term loans to RBI’s repo rate of RBI with effect from May 1.

So, from May 1, while SB deposits with balances up to ₹1e lakh (comprising almost 95 per cent of the SB account holders) will earn 3.50 per cent interest, those with balances above this threshold will earn 3.25 per cent (2.75 per cent below the repo rate, which is currently at 6 per cent).

The central bank cut its policy repo rate (the interest rate at which it provides liquidity to banks to overcome short-term mismatches) on April 4 from 6.25 per cent to 6 per cent.

SBI said the benefit of reduction in repo rate will get passed on in its entirety to its Short Term Loan -- Cash Credit (CC)/Over Draft (OD) -- customers with effect from May 1.

All CC/OD customers with limits above ₹1 lakh will be charged a minimum (floor) interest rate of 8.25 per cent (repo rate plus a spread of 2.25 per cent) against the current 8.50 per cent. The risk premiums over and above this floor rate would be based on the risk profile of the borrower, as is the current practice.

Following in the footsteps of SBI, the Indian Overseas Bank has also pared its MCLR by 5 bps in tenors of one year and above with effect from April 10. The Chennai-headquartered public sector bank’s one-year MCLR will be 8.65 per cent against 8.70 per cent now.

RBI Governor Shaktikanta Das last week said the central bank is conscious of the fact that there has to be effective transmission of rates.

“After the last meeting I had with public and private sector banks, they have marginally, up to about 10 basis points, cut their MCLR; but more needs to be done,” he said.