In what could well be a warning to commercial banks, the Industrial Development Bank of India (IDBI) which is in the process of transforming itself into a bank has reduced its medium-term lending rate (MTLR) by a whopping 225 basis points (bps) to 10.25 per cent per annum. The rate was earlier 12.50 per cent.
Further, IDBI has also dome away with two rates one MTLR and another minimum short-term lending rate into one. It would nowe offer all its loan products based on MTLR.
Speaking to FE IDBI chairman M Damodaran said: We want to tell the world that we are back in business.
Pertinent to note here that the benchmark prime lending rates for State Bank of India (SBI) and ICICI Bank are 10.25 per cent and 10.50 per cent respectively. In effect, IDBI is now on a parr with its leading rivals in the commercial credit market.
It remains to be seen now as to what extent, IDBIs move will affect the credit markets. Lenders have been fund-flush for over two years now. The Reserve Bank of Indias dollar sterilisation is also aiding rupee liquidity. Daily outflows at the central banks repos auctions have consistently been near the Rs 30,000 crore mark.