Axis Bank on Tuesday announced a lower marginal cost of lending rates (MCLR), aligning it closer with the rates of competitors such as HDFC Bank and ICICI Bank.

For a tenure of one-year, the bank’s MCLR stands at 9.35% compared with 9.2% for State Bank of India (SBI) and HDFC Bank, and 9.25% for Bank of Baroda.

The lender also trimmed its base rate by 5 basis points to 9.45% compared with the lowest rates in the industry at 9.3%.

The cut comes after the Reserve Bank of India (RBI) trimmed the key repo rate by 25 basis points on April 5, thereby lowering the cost of borrowing in the wholesale market.

Axis Bank has reduced its MCLR by 15 basis points across tenures and the change in rates will be effective April 18, according to a press release.

“The MCLR mechanism is expected to ensure more effective transmission of changes in monetary policy rates for new borrowings. This is illustrated by our reduction in MCLRs as soon as market rates reduced,” Shikha Sharma, MD & CEO, Axis Bank, said.

Banks have so far been disbursing loans based on their base rates or the lowest rate below which they cannot lend. Lenders typically take a few months to trim their base rates because they first need to bring their deposit rates down in order to ensure their margins do not take a hit.

The RBI had introduced the MCLR in order to provide an effective transmission mechanism for rate reductions by it.

According to the central bank, MCLR guidelines are expected to ensure availability of bank credit at interest rates which are fair to borrowers as well as the banks.

Banks will have to review and publish their MCLR of different maturities every month on a pre-announced date. The MCLR prevalent on the day the loan was sanctioned will be applicable till the next reset date, irrespective of the changes in the benchmark during the interim period.

Existing loans and credit limits linked to the Base Rate may continue till repayment or renewal and existing borrowers will also have the option to move to the MCLR-linked loan
at mutually acceptable terms.