The SBI on Thursday said that though the Marginal Cost of Funds-based Lending Rate (MCLR) is expected to be in tandem with the policy rates, banks are hesitant to reduce it due to cost of credit and deposits and NPAs positioning. The Reserve Bank of India (RBI) on Wednesday cut the key lending rates by 25 basis points (bps). “As far as the MCLR is concerned, it is a function of multiple components. It is intended that the MCLR is in tandem with policy rates,” State Bank of India (SBI) Managing Director and Chief Executive Officer Dinesh Khara told BTVi in an interview.
“But other factors like the cost of deposit and cost of credit — which are a critical determinant of MCLR — and also non-performing assets (NPAs) positioning, are restricting banks from cutting the MCLR… the policy rates are a critical component but not the only component affecting the MCLR,” he said.
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The banking system is rolling into a lot of liquidity and they would like to deploy that liquidity into the right kind of investments and projects coming up for consuming this kind of liquidity, Khara said. The advances growth in general is 6 per cent in the current fiscal while the retail advances are doing well at 10-12 per cent.
Retail advances are still linked to base rate while the corporate advances are getting aligned to the MCLR. “Banks are willing to lend at the right kind of price. But when it comes to investment demand from corporates, that is yet to be seen. My sense is that economic activity through private investment gets revived,” he said.