Lending rates could fall as early as next month when the fresh MCLR (marginal cost of funds) rates will be announced, B Sriram, managing director of State Bank of India, told FE on Tuesday, adding that the Asset-Liability Management Committee (ALCO) will meet on October 24 to decide on the new rate. SBI has already reduced its one-year MCLR by 5 basis points (bps) this month.
“(Under the MCLR system) whatever benefit there is every month will flow to the customer immediately. There is no need to wait for months to make a decision – it’s a continuous process…so there could be a cut next month,” he said.
Other bankers also said adjustments to the MCLR had begun before the announcement and that transmission would also depend on other economic variables, especially credit demand and supply of money in the system.
“We have cut our MCLR by 5 bps this month and this is an indication that we will cut rates going forward as and when credit demand picks up. We have to see how other banks react and how deposit rates are coming down, and then probably next month or next quarter,” said Ram Sangapure, executive director of Punjab National Bank.
Keki Mistry, vice-chairman and chief executive officer of HDFC, said even though incremental costs of funds had come down, it would take some more time for it to get transmitted to lower lending rates. He expects the change to come about in a couple of months.
Others lenders, including Bank of Maharashtra and Kotak Mahindra Bank, said they would watch out for economic data and accordingly address the transmission of interest rates.
“We will take a view of our margins and the effective interest benefit that can be passed on to our borrowers in near future,” said Ravindra Prabhakar Marathe, CEO and MD of Bank of Maharashtra.
Another factor that will impact the eventual transmission of interest rates is the pace at which banks are able to resolve their bad loans. Umesh Revankar, executive director of Shriram Transport Finance, said banks would transmit more easily when their NPLs had seen their peak. “After that, when they are comfortable handling NPLs, the transmission will become easy and if there is credit demand going up, then there is competition”.
“We should be able to see it (transmission) in the next six months when the NPLs have bottomed out and credit demand really picks up. More and more new loans given on MCLR will have lesser and lesser rates,” Revankar said.
Srinivasan Varadarajan, deputy managing director at Axis Bank, said while a cut in the base rate could take longer than that for an MCLR cut, it should come down. “We will review it and it should come down,” he said. ICICI Bank lowers lending rates by 5 bps.
Within hours of the RBI’s surprise cut in the key policy rate, ICICI Bank on Tuesday took the lead with a 0.05% reduction in its marginal cost of funds-based lending rate to 9.05%, reports PTI.
Under the new rates, retrospectively effective from October 1, the one-month MCLR will be 8.85%, against 8.90% earlier, the bank said.
The one-year MCLR, which is used to compute the effective yearly rate in a slew of products including the home loans, will be 9.05% as against 9.10%.
After cutting the repo rate at the RBI’s fourth bi-monthly monetary policy review of 2016-17, governor Urjit Patel was quick to point out the central bank’s dismay at lenders for holding on to higher rates. “I agree that the transmission through bank lending has been less than anyone of us would have liked to,” Patel said.