Tags:
Journalism of Courage
State Bank of India, India’s largest bank, on Tuesday reduced the marginal cost of funds-based lending rate (MCLR) by 5 basis points across all tenors, effective April 10. According to the bank, the revised one-year MCLR stands at 8.5 per cent down from 8.55 per cent earlier. The lender has also cut interest rates on housing loans up to Rs 30 lakh by 10 bps.
Accordingly, the interest rate on housing loans below Rs 30 lakh will be in the range of 8.60-8.90 per cent, down from 8.70-9 per cent earlier. The move follows a 25 basis points cut in repo rate by the Reserve Bank in its first monetary policy review announced last week. In the February policy review also the monetary authority had lowered the key rates by a similar quantum. The central bank had cut the repo rate to 6 per cent from 6.25 per cent earlier in a 4:2 majority vote, citing the need to support growth that has been sluggish since many months.
The RBI has been pushing the banks to pass on rate cut benefits to their customers. “We are conscious of the fact that there has to be appropriate and effective transmission of rates. After the last meeting, I held a meeting with both the public and private sector banks. The banks have marginally cut their MCLR, but more needs to be done. We are working on a timeline for transmission of rates but at this point I do not want to mention a date,” RBI Governor Shaktikanta Das said while unveiling the monetary policy on April 4.
The RBI also put on hold its proposal to link interest rates on deposits and short-term loans to an external benchmark like the Repo rate or Treasury Bill. While the move to link interest rates to an external benchmark was aimed at increasing transparency and speeding up transmission of rate cuts, many banks were against the RBI’s plan.
State Bank of India had recently announced its plan for linking interest rates on savings accounts having balances above Rs 1 lakh and overdraft, cash credit accounts to the repo rate in a partial manner from May 1, 2019. Currently, banks follow the marginal cost of lending rate (MCLR) formula where rates are linked to cost of their funds and are reset in different internals such as one month, six months to one year.
