- SBI cut its base lending rates by 90 basis points for 1-year tenure
- Banks use the one-year benchmark rate to price home and car loans
- PM Modi on Saturday had asked banks to keep public interest in mind
The country's largest lender State Bank of India (SBI) has led banks in a cut in lending rates, taking a cue from Prime Minister Narendra Modi's address to the nation on Saturday, in which he asked banks to share with customers the benefits from a deluge of cash in old notes deposits after he abolished 500 and 1000 rupee notes on November 8.
PM Modi had in his address 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.
SBI, the country's biggest lender by assets, on Sunday cut its lending rates by 90 basis points for maturities ranging from overnight to three-year tenures. It has reduced the marginal cost of funds-based lending rate (MCLR) to 8 per cent for one-year tenure, from 8.9 per cent.
Banks use the one-year benchmark for home and car loans. They add a margin above their MCLR to price retail loans. This is the lowest benchmark rate for SBI in six years, which means the bank will offer its lowest rates since 2011. SBI in total has cut its benchmark lending rate by 200 basis points since January 2015.
After the cut in MCLR rate, SBI has brought down the home loan rate (floating) to 8.60 per cent for women borrowers and to 8.65 per cent for others on loans up to Rs 75 lakh. This means new home loan borrowers can avail floating rate loans from SBI from 8.60 per cent. Older loans get the benefit of the revised rates after their one-year lock-in ends.
For loans above 75 lakh, the rate is 8.65 per cent for women borrowers and 8.70 per cent for others.
For fixed home loans up to Rs 30 lakh, SBI will charge an interest rate of 8.50 per cent for women borrowers (8.55 per cent for others). Under this scheme, the interest rate for the first two years will be fixed and thereafter linked to floating rate.
Other public sector lenders Punjab National Bank (PNB) and Union Bank of India (UBI) too have brought down the benchmark interest rate by up to 90 basis points. PNB has cut its one-year MCLR rate by 70 basis points to 8.45 per cent from 9.15 per cent. Similarly, Union Bank of India has reduced its MCLR by up to 90 basis points. Also, Dena Bank slashed its benchmark lending rate by 0.75 per cent.
Private lender Kotak Mahindra Bank and ICICI today cut its MCLR by up to 45 basis points and 70 basis points.
"Welcome reduction of interest rates by SBI. Loan disbursements expected to pick up. Positive for the economy," he added.
The government has said that the results of the notes ban - which it has branded a big success - are visible now. Finance Minister Arun Jaitley said last week that demonetisation had increased the "lending capacity of the banks and naturally the cost of capital will come down."
He also countered critics of the notes ban by saying that parameters of economic activity such as tax collection, petroleum consumption, investments in mutual funds has shown an increase.
Last week, SBI's subsidiary State Bank of Travancore had announced a reduction in the lending rate, followed by another public lender IDBI, which cut base interest rate by up to 60 basis points.
Analysts say that with Reserve Bank of India (RBI) is likely to cut rates further this year in the wake of falling inflation and banks may further reduce their lending rates. The surge in deposits will allow banks more leeway to pass on RBI rates cuts than before.
The RBI has not yet released the final numbers of deposits banks have attracted after the notes ban, which took out 86 per cent or Rs. 15.44 lakh crore out of circulation. The deadline for depositing old 500 and 1,000 rupee notes ended on December 30. Banks had received close to 12.5 lakh crore deposits in banned notes till 10 December, the RBI had said earlier.