State-run IDBI Bank today cut its marginal cost of funds based lending rate (MCLR) by up to 0.25 per cent, further establishing the downward trend in interest rates due to the excess liquidity. “The reduction in MCLR is expected to positively impact loan growth, thereby supporting the growth impulses in the economy,” a bank statement said.
It can be noted that the banking system’s loan growth dipped to a multi-decade low of just over 5 per cent in FY17, which also saw a glut of deposits in the second half due to the Government’s move to ban high value currency that has left banks with a flush of liquidity with few takers for it.
The highest cut in MCLR — which has to be reviewed every month — has been in the three month and the six months tenor, where the MCLR has been reduced to 8.30 per cent and 8.35 per cent, respectively.
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The one year MCLR, against which many long-term loans including car loans and residential mortgages are benchmarked, has been cut by 0.15 per cent to 8.65 per cent. The move comes a day after the country’s largest lender SBI cut its affordable housing loan interest rates by 0.25 per cent to 8.35 per cent.
The MCLR system replaced the earlier base rate system in April 2016. It was introduced for a faster transmission of the RBI’s policy rates into the lending rates of the banks.