HDFC Bank, the country’s second-largest private-sector lender, has reduced its marginal cost of funds-based lending rate (MCLR) by 15 basis points (bps) across tenures, effective Monday. The bank’s MCLR on one-year advances now stands at 8.9%. The rates on overnight borrowings to three-year loans range between 8.7% and 9.05%. The benefit of this reduction in rates will be available to new borrowers, while existing borrowers will have the option of switching to MCLR-based lending from the base rate regime.
Meanwhile, state-run Bank of India has also reduced its one-year MCLR by 5 bps to 9.3%, effective Monday.
HDFC Bank’s MCLRs on loans with tenures between one month and three years are now at par with those of the country’s largest lender, the State Bank of India (SBI). Its one-year MCLR is now below that of larger peer ICICI Bank, which stands at 8.95%. On Sunday, state-owned Bank of Baroda had announced a 10-bp reduction in MCLRs across tenures, with the rate on one-year loans coming down to 9.25%, effective Monday.
The current series of cuts in MCLR cuts began with SBI and ICICI Bank lowering their rates on October 28. They were followed last week by government-owned lenders Punjab National Bank, Dena Bank, Union Bank of India and State Bank of Bikaner and Jaipur.
While banks are lowering lending rates, a fairly large spread between bank rates and those in the corporate bond market persists. In a report dated October 19, Credit Suisse had pointed out that banks had reduced rates by only 75 to 95 bps since the beginning of the Reserve Bank of India’s easing cycle, whereas bond yields had fallen by 265 bps over the same period. On Monday, the FIMMDA benchmark for AAA-rated corporate bonds was 7.70%. However, the bond market caters to highly rated companies, whereas those with ratings lower than AA are dependent on banks for their capital needs.