Banks have begun to trim loan rates even as they simultaneously lower deposit rates to try and ensure their margins are not hit. A clutch of banks has dropped the marginal cost of funds-based lending rates (MCLR) — essentially for loans to new borrowers — over the past fortnight.
On Tuesday, a few state-owned lenders, which typically have a larger corporate portfolio than their peers in the private sector, announced cuts in the MCLR including Punjab National Bank (PNB) and Dena Bank.
While PNB trimmed its MCLR by 5 basis points (bps) across tenures Dena Bank cut overnight rates and rates on one-month and one-year loans. Union Bank of India and State Bank of Bikaner and Jaipur (SBBJ) reduced the MCLR by 10 bps across tenures. The one-year MCLR at PNB, effective Tuesday, is 9.25%, while it is 9.40% at Dena Bank, 9.30% at Union Bank, and 9.45% at SBBJ. Last week, the State Bank of India (SBI) had announced a reduction in its one-year MCLR to 8.75% from 9.05%. Corporation Bank had reduced it to 9.45% from 9.50%.
Banks on easing spree
The public sector banks were joined by private lender Kotak Mahindra Bank, which on Tuesday reduced its one-year MCLR by 5 bps to 9.45%. Last week, the country’s largest private lender, ICICI Bank, had reduced the MCLR by 10 bps across tenures.
While banks are lowering loan rates there is nevertheless a fairly large spread between bank rates and those in the corporate bond market. Credit Suisse pointed out banks had reduced rates by only 75 to 95 bps since the beginning of the easing cycle, whereas bond yields had fallen by 265 bps over the same period. However, the bond market caters more for highly rated companies, those with ratings lower than AA are dependent on banks. Corporate bond issuances have risen to a record Rs 2 lakh crore in the July-September quarter, as against Rs 1.3 lakh crore in January-March.