PNB, Allahabad Bank cut MCLR: Why home loan borrowers may still not rejoice

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Updated: February 28, 2019 2:05:07 PM

For an existing home loan taker, the home loan rate is typically reset after 12-months and any change in the EMI will reflect only after a year.

 marginal cost of funds based lending rate,MCLR, home loan, EMI , RBI, PCANot many banks had resorted to cut in MCLR since the last RBI meeting, therefore, it remains to be seen, if other banks follow suit.

Two major public sector banks, Punjab National Bank (PNB) and Allahabad Bank, have announced a reduction in their marginal cost of funds based lending rate (MCLR) by 10 basis points (bps) across various tenures from March 1.

The move will not only help new borrowers ( of these two banks) but also the existing ones for whom the reset date is closing in. For an existing home loan taker, the home loan rate is typically reset after 12-months and any change in the EMI will reflect only after a year. MCLR linked flexible home loan may, therefore, be called ‘fixed-for-a-year loan’.

The new rates

In case of Allahabad Bank, for all the tenures of overnight, one month, three months, six months, one year, two years and three years, the bank has cut the MCLR by 0.10 per cent each to 8.15 per cent, 8.25 per cent, 8.45 per cent, 8.50 per cent, 8.65 per cent, 8.85 per cent and 8.95 per cent respectively. Interestingly, the 1-year MCLR of Allahabad Bank was 8.5 per cent in September 2018, which currently stands at 8.65 per cent.

Further, in the case of PNB, the MCLR will now stand at 8.05 per cent, 8.10 per cent, 8.15 per cent, 8.35 per cent, 8.45 per cent and 8.65 per cent for the overnight, one month, three months, six months, one year and three years tenure respectively.

Will rates fall further

The Reserve Bank of India (RBI) in its February 2019 meeting had announced a cut in the repo rate by 25 basis points which now stands at 6.25 per cent. However, even before the MPC meeting, on February 5th, Bank of Baroda (BOB) had declared that it is going to increase its MCLR from February 7th. The 1-year MCLR for BOB is up by 10 basis points and stands at 8.75 per cent. Earlier, in January, HDFC Bank had hiked its MCLR to 8.75 per cent, 8.90 per cent and 9.05 per cent for the one, two and three-year tenors, respectively.

As expected, not many banks had resorted to cut in MCLR since the last RBI meet. Even the country’s largest lender SBI had announced a cut in home loan rates by 0.05 percentage point for loans up to Rs 30 lakh effective February 11, with no cut in MCLR. Only the mark-up in case of some loan amount was reduced thus bringing the home loan rate down. The SBI’s 1-year MCLR in September 2018 was at 8.55 per cent and remains the same as on date.

The lowering of MCLR of PNB and Allahabad Bank may be seen in the light of the RBI’s move of lifting lending curbs on these two public sector banks and taking them out of the Prompt Corrective Action (PCA) Framework. Therefore, it remains to be seen, if other banks and importantly the market leader SBI announces a reduction in their MCLR thus lowering the borrowing costs further.

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