With banks now updating their marginal cost of funds-based lending rates (MCLRs) across maturities every month, large borrowers are trying to cash in on the trend of falling interest rates.
If the MCLR drops between the date of approval and the date of disbursement of a loan, borrowers are asking banks to lend to them at the lower rates, multiple sources in the banking industry told FE.
“Recently, a large retail-focused non-banking finance company (NBFC) insisted on being lent at the one-year MCLR prevalent on the day of disbursement, which was 10 bps lower than that on the day we had approved the loan. Given that there’s hardly any demand for credit from corporates, we had to accommodate the NBFC’s demand,” a senior banker with a mid-sized public sector bank said.
He added that to avoid such issues, the bank has started adding a new clause in the loan agreement that binds the borrower to the rate of interest prevalent on the date of approval.
According to the RBI guidelines, the MCLR prevalent on the day a loan is sanctioned will be applicable till the next reset date, irrespective of the changes in the benchmark during the interim and banks have the option to offer loans with reset dates linked either to the date of sanction or the date of review of MCLR.
“Lenders today are rate takers and not rate makers. We are literally making a beeline before highly-rated NBFCs, which suddenly seem to be the only large borrowers from banks like us. There are many banks to lend them, but we don’t have many to lend to,” the head of corporate banking at another PSB said.
Pointing at the fact that MCLR guidelines allow for the periodicity of reset to be one year or lower, he complained that the RBI has kept just the interest of borrowers in mind and not that of lenders while formulating the guidelines.
“Even though many of the large borrowers are not ready for a reset period of even a quarter, we have finally taken a call to not approve a loan if the borrower is not ready to be tied down to one rate for at least six months,” he said.|
The RBI has made it mandatory for banks to adopt the MCLR as the benchmark for loans from April 1, since it enables faster transmission. However, despite being in effect for barely a quarter, RBI governor Raghuram Rajan had last week said the central bank will soon revise the MCLR mechanism.