State Bank of India (SBI), the country’s largest lender, has reduced the base rate and benchmark prime lending rate (BPLR) by 30 basis points (bps) with effect from January 1, leading to a decline in EMIs (equated monthly instalments) of over 80 lakh existing customers.
The base rate has been slashed from 8.95 per cent to 8.65 per cent for existing customers and BPLR from 13.70 per cent to 13.40 per cent. Bank has also decided to extend on-going waiver on home loan processing fees till March 31, 2018 for new customers and other customers looking to switch their existing loans to SBI. Though banks migrated to the MCLR system in April 2016, most of the loans, particularly retail loans, remain linked to the previous base rate system. Any reduction in base rates will impact those customers.
PK Gupta, managing director (retail & digital banking), SBI, said: “The reduction is a new year gift to the bank’s loyal customers as a large number of consumers who have their loan linked to base rate will be benefitted. This reduction is part of bank’s efforts to ensure transmission of reduction in the policy rates in the recent past. About 80 lakh customers will be benefitted.”
Banks review MCLR on a monthly basis, while the base rate revision happens once a quarter. “MCLR was reduced earlier also as the gap between MCLR and base rate had become quite wide. This move will help in reducing that gap,” he said. The revision will ensure transmission of reduction in the policy rates in the recent past, he said. As in the case of SBI, less than 25 per cent of its customers have been impacted by the base rate cut, Gupta said.
MCLR rates, on the other hand, have been left unchanged with the one-year rate at 7.95 per cent and overnight rate at 7.70 per cent, according to the lender’s website. Given the current liquidity position, the bank does not anticipate a revision in the MCLR anytime soon. Besides, CASA ratio and deposit rates – the two most important determinants of MCLR – have remained stable. However, if liquidity tightens further, the lender will have to review the rates, Gupta said.
In November 2017, SBI raised interest rates on bulk deposits by 1 percentage point in certain categories. After the revision, the interest rate for deposits above Rs 1 crore and tenors of at least one year stood at 5.25 per cent. Senior citizens get an extra 50 basis points across all maturities.
The base rate reduction comes at a time when yields on government securities are inching up in the wake of a rising inflation and fears of a fiscal slippage has also come as a surprise to analysts. The benchmark 10-year bond yields have topped 7.3 per cent — a sharp rise over the past year with inflation now inching close to 5 per cent – which had prompted the RBI to maintain status quo at its last policy review. With fears of the government breaching the fiscal deficit target of 3.2 per cent for FY18 owing to lower revenue collections and reflected in extra borrowing of Rs 50,000 crore and inflation risks, the RBI’s next policy review in February will be closely watched.
On top of this, some banks, including SBI, had recently raised interest rates on bulk deposits of over Rs 1 crore by one percentage point. Other state owned banks may be under pressure now to follow suit by cutting their base rate and MCLR after Monday’s decision by SBI to retain customers.
SBI had cut home loan rate for new customers by 5 bps to 8.30 per cent (based on MCLR) which is much lower than home loan rates based on base rate. A committee set up by the RBI had recently recommended linking bank lending rates to a market benchmark in order to speed up monetary policy transmission as well improve transparency in rate setting by banks.xc