Migration to the marginal cost of funds-based lending rate (MCLR) regime from the older base rate regime constitutes less than 20% of the overall loan book at most large banks, a cross-section of bankers told FE.
The country’s largest lender, State Bank of India, has 40% of its loan book pegged to MCLR and between 40% and 45% of its corporate borrowers have made the switch to the new regime.
Retail borrowers can make the transition on request and figures for this segment were unavailable. B Sriram, managing director at the bank, told FE that while corporate loans also make the transition on request, the process there has been more expeditious because such loans come up for reviews at predetermined intervals. “At the end of it all, everyone will migrate to MCLR,” he said.
A good deal of migration is believed to have happened at Delhi-based Punjab National Bank, where 20% of the book is linked to MCLR and about 15% of the value of the book is comprised of loans which have migrated.
Another large state-owned lender, Bank of India, has 45% of its portfolio on MCLR and between 7% and 10% of it comprises the value of loans that have made the switch to the MCLR from the base rate.
HDFC Bank had 30% of its book linked to the base rate to begin with, and between 30% and 40% of that has switched to MCLR.
This puts the share of loans that have migrated at between 9% and 12% of the overall book.
While the share of such loans at the other two large private-sector lenders could not be ascertained, the share of MCLR-linked loans in their portfolios is itself quite low. ICICI Bank and Axis Bank have 20% and 18%, respectively, of their loans pegged to their MCLRs, according to post-results statements made by their managements to analysts.
Bank of Baroda has seen migration in loans worth between 3% and 4% of its loan book, according to sources.
The MCLR regime, which came into force in April 2016, requires banks to determine interest rates based primarily on their incremental cost of funds. Since banks review their MCLR on a monthly basis, it is supposed to be a more effective and transparent means of monetary policy transmission than the older base rate system.
However, the system does not apply to fixed-rate loans, which includes auto loans, commercial vehicle loans and personal loans.
Banks have their own processes for migration. In case of retail borrowers, while some charge a one-time fee of R10,000 or 0.25% of the outstanding amount for the migration, others do it free of charge but the revised MCLR begins to apply only after the reset date for that particular loan.
For most corporate loans, migration is almost automatic as they come up for review more frequently.