This is due to the fact that Reserve Bank of India (RBI) guidelines allow for the continuation of the base Rate as the reference even though the marginal cost...
Private sector lender Axis Bank on Wednesday reduced its base rate by 10 bps from 9.45% to 9.35%.
The new rates will come into effect from July 27, the bank announced in a release. With this cut, Axis Bank’s base rate is the joint second lowest among Indian banks along with that of ICICI Bank. The base rates of the country’s largest bank by assets, State Bank of India, and the largest bank by market capitalisation, HDFC Bank, are currently the lowest at 9.3%.
While having no impact on new borrowers, the 10 bps reduction in the base rate will reduce the interest burden on those borrowers of the bank whose loans are still linked to the base Rate.
This is due to the fact that Reserve Bank of India (RBI) guidelines allow for the continuation of the base Rate as the reference even though the marginal cost of funds based lending rate (MCLR) has become the reference from April 1, 2016.
“Existing loans and credit limits linked to the base Rate may continue till repayment or renewal, as the case may be. Existing borrowers will also have the option to move to the MCLR linked loan at mutually acceptable terms,” RBI’s guidelines read.
In order to facilitate monetary transmission and ensure that changes in lending rates are sensitive to movements in the policy rates, the central bank has introduced the MCLR as the benchmark for lending, instead of the base rate, from April 1. RBI has been lowering the key policy rate with a view to enabling banks to lower loan rates. However, despite a 125 bps cut in the repo rate in 2015 — from 8% to 6.75% — banks reduced base rates by a maximum of 70 basis points.