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SBI quick to follow suit with MCLR cut

SBI, the country’s largest lender, lowered its benchmark rates by 15 basis points across tenors

  • Published 8.08.19, 1:14 AM
  • Updated 8.08.19, 1:14 AM
  • 2 mins read
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Shaktikanta Das in Mumbai on Wednesday PTI

Interest rates on car, home and other loans are set to fall further with the RBI slashing the policy repo rate by 35 basis points. Within hours of its action, SBI, the country’s largest lender, lowered its benchmark rates by 15 basis points across tenors.

While senior bankers hinted at further interest rate cuts in the coming days, Corporate India maintained that a full transmission of the repo will be crucial to lift the country out of the grips of a slowdown. However, there were others, particularly from the real estate segment, who feel the 35-basis-point reduction was insufficient to improve buyer sentiment.

The unorthodox move from the RBI comes at a time when banks have not fully passed on the 0.75 per cent reduction in the repo between February and June this year.

According to governor Shaktikanta Das, the lenders have only transmitted 0.29 per cent (or one-third) as rate cuts to their borrowers. This is in sharp contrast to the financial markets where the policy impulses have been passed on fully. For instance, the weighted average call money rate has declined by 78 basis points.

Bankers say that one of the factors that has hindered the transmission is that not all deposits get re-priced, thereby affecting the cost of funds.

SBI chairman Rajnish Kumar told a television channel that this was one of the reasons that transmission through the marginal cost of funds-based lending rate (MCLR-the benchmark rate against which home and other loans are priced) is not happening in line with the changes in the repo rate.

The SBI said that its one-year MCLR (against which home loans are priced) will be reduced to 8.25 per cent from 8.40 per cent. While this is the fourth consecutive cut in the MCLR, the SBI disclosed that with Wednesday’s reduction, home loans have become cheaper by 30 basis points since April. The SBI is also offering a home loan product that is linked to the repo rate.

“This (RBI rate cut) would go to reduce the lending rate offered by banks. Overall banks have reduced the interest rate on fresh rupee loans by 29 basis points. With an improvement in the liquidity position and a reduction in deposit rates offered by banks, a further reduction in lending rates are expected,’’ Sunil Mehta, MD & CEO, PNB and chairman of the Indian Banks’ Association (IBA), said.

Das was quick to dismiss rumours that the banks have formed a cartel to keep the rates high. “We expect higher transmission of policy action and stance by the banks in the weeks and months ahead.. Our interactions with various stakeholders indicate that steps are being taken on an ongoing basis to lower their interest rates so that the benefits of policy rates cuts are fastened to the economy,” he said.

Anuj Puri, chairman of Anarock Property Consultants, however, said for real estate, a cut of 35 basis points is insufficient to significantly improve buyer sentiment in the mid-income segment, which has a staggering unsold inventory of 2.17 lakh units in the top seven cities.

He added that demand for affordable housing which accounted for 2.40 lah unsold units in these cities may see an improvement.