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January 2017
With major infusion of fresh liquidity
arising from the demonetisation measure, state-run State Bank of India said on
Sunday it had cut its lending rates by 90 basis points for maturities ranging
from overnight to three-year tenures, after experiencing a surge in deposits.
The country's largest lender cut its
marginal cost of funds-based lending rates (MCLR) effective from New Year's Day
in response to a surge in deposits post the demonetisation of high value
currency on November 8. The Total
Investment & Insurance Solutions
For loans of overnight tenure, the new
MCLR will be 7.75 per cent, instead of 8.65 per cent. One-month tenure will
attract a rate of 7.85 per cent, while those for three and six months will be
7.90 and 7.95 per cent, respectively.
The Total Investment & Insurance Solutions
For one year, the new MCLR will be 8 per
cent. The bank will levy interest rate of 8.10 per cent and 8.15 per cent for
two years and three years, respectively.
Lending rates were lowered also across
other maturities, effective from Sunday.
According to estimates, banks have
collected cash deposits of over Rs 14.9 lakh crore following Prime Minister
Narendra Modi's November 8 announcement, demonetising Rs 1,000 and Rs 500 notes
to eliminate black money, counterfeit notes and terror financing.A
The SBI move also comes after Prime
Minister Narendra Modi in his address to the nation on Saturday asked banks to
"keep the poor, the lower middle class, and the middle class at the focus
of their activities," and to act with "public interest" in mind.
State-owned IDBI Bank has also cut in
its MCLR by 30-60 basis points (bps) effective Sunday.
The bank said it has effectively reduced
MCLR by 30 bps to 60 bps across various tenures since April 2016. The Total Investment & Insurance Solutions
Similarly, state-run Punjab National
Bank also slashed its lending rates across maturities ranging from overnight to
five years with the new rates effective from Sunday.
For loans of overnight tenure, the new
MCLR will be 8.20 per cent, instead of 8.90 per cent. One-month tenure will
attract a revised rate of 8.25 per cent, while those for three and six months
will be 8.35 percent and 8.40 per cent respectively. The Total Investment & Insurance Solutions
The lender cut down lending rates for
the tenure of one year, three years and five years loans to 8.45 percent, 8.60
percent and 8.75 percent respectively.
Under the MCLR, banks need to consider
their marginal cost of funds, or the cost incurred on incremental deposits
across different maturities, to decide on interest rates.
Private sector Axis Bank cut its MCLR in
November by 0.15-0.20 per cent
Following the Reserve Bank of India
(RBI) cutting its repo rate by 25 bps in October, public sector lenders -- the
United Bank of India, Canara Bank, Indian Bank, Indian Overseas Bank, Bank of
India and the Syndicate Bank -- as well as the private sector ICICI and Kotak
Mahindra banks have cut lending rates.
The Total Investment & Insurance Solutions
To nudge banks to transfer the benefit
of RBI rate cuts, previous Governor Raghuram Rajan had announced a shift to the
MCLR regime, under which banks need to consider their marginal cost of funds,
or the cost incurred on incremental deposits across different maturities, to
decide on interest rates.
However, though Rajan -- during his
tenure -- had cut rates by 150 bps since January 2015, banks had hardly moved
at the same pace to cut their lending rates. The Total Investment & Insurance Solutions
From the state-run banks' point of view,
their accumulation of massive non-performing assets (NPAs), or bad loans, that
is impacting profitability, is keeping them from cutting rates.The Total Investment & Insurance
Solutions
