State Bank of India (SBI), the country’s largest lender, on Tuesday cut the marginal cost of funds-based lending rate (MCLR) across tenors by 5 basis points (bps), pegging the one-year MCLR at 8.50%. This makes it the most competitive among the top-tier lenders since HDFC Bank’s one-year MCLR is 8.7%, while for ICICI Bank it is slightly higher at 8.75%. Mid-sized public-sector lender Indian Overseas Bank (IOB) also cut its lending rates by 5 bps across tenors on Tuesday, the one-year MCLR being 8.65%.
The country’s largest lender also sought to make its home loan product more attractive, trimming the interest rates on home loans for an amount of up to Rs 30 lakh between 8.6% and 8.9%. Earlier in February, SBI had cut home loan rates by 5 bps for loans up to Rs 30 lakh. ICICI Bank offers home loan 9.05 —10.25% for up to Rs 30 lakh.
SBI cut its MCLR rates for the overnight, one-month, three-month, six-month and one-year tenors by 5 basis points (bps) to 8.15%, 8.15%, 8.20%, 8.35% and 8.50%, respectively. According to the bank, lending rates on loans linked to the MCLR will be cut by 5 bps.
India’s largest private sector lender, HDFC Bank, cut its lending rates by 5-10 bps on April 8, with the one-year MCLR at 8.7%. Other lenders such as ICICI Bank, Punjab National Bank (PNB) and IDBI Bank also cut MCLR rates by 5 bps, 10 bps and 5 bps, respectively, in March to 8.75%, 8.45% and 9.05%.
Although the Reserve Bank of India (RBI) cut the repo rate by 25 basis points (bps) to 6% first in February and then in April, banks have been reluctant to drop loan rates. That’s because deposits have been growing at a somewhat slow pace —sub 10% — and lenders are unwilling to lower interest rates on deposits. Rajnish Kumar, chairman, SBI, had recently observed that banks losing savings to the mutual funds was a matter of concern. Kumar had expressed concern at the fact that term deposits were not growing as fast as lenders would like.
Banks have also been apprehensive of the RBI’s proposal to change the way banks price their loans.
The central bank wants lenders to link loan rates to an external benchmark rate like the repo rate or the 91-day or 182-day treasury bill. “The challenge for the banks, not just for us but all the banks, will be how closely correlated the benchmark will be with our actual funding cost. The good thing is that we have to do it on the mortgage portfolio and the MSME portfolio to start with,” said ICICI Bank CFO Rakesh Jha.
Bank credit in India is expected to grow at 13-14% on average between FY19 and FY20, significantly faster compared with the 8% in FY18, which would force a change in the deposit mobilisation plans of banks over the medium term, said experts at CRISIL Ratings. To meet this credit growth, banks will have to raise about Rs 25 lakh crore over the two fiscals, observed experts.