Mumbai, Jan 1: With major infusion of fresh liquidity arising from the demonetisation measure, state-run State Bank of India said on Sunday it had cut its lending rates by 90 basis points for maturities ranging from overnight to three-year tenures, after experiencing a surge in deposits.
The country’s largest lender cut its margil cost of funds-based lending rates (MCLR) effective from New Year’s Day in response to a surge in deposits post the demonetisation of high value currency on November 8.
For loans of overnight tenure, the new MCLR will be 7.75 per cent, instead of 8.65 per cent. One-month tenure will attract a rate of 7.85 per cent, while those for three and six months will be 7.90 and 7.95 per cent, respectively.
For one year, the new MCLR will be 8 per cent. The bank will levy interest rate of 8.10 per cent and 8.15 per cent for two years and three years, respectively. Lending rates were lowered also across other maturities, effective from Sunday.
According to estimates, banks have collected cash deposits of over Rs 14.9 lakh crore following Prime Minister rendra Modi’s November 8 announcement, demonetising Rs 1,000 and Rs 500 notes to elimite black money, counterfeit notes and terror fincing.
The SBI move also comes after Prime Minister rendra Modi in his address to the tion on Saturday asked banks to “keep the poor, the lower middle class, and the middle class at the focus of their activities,” and to act with “public interest” in mind.
State-owned IDBI Bank has also cut in its MCLR by 30-60 basis points (bps) effective Sunday. The bank said it has effectively reduced MCLR by 30 bps to 60 bps across various tenures since April 2016. Under the MCLR, banks need to consider their margil cost of funds, or the cost incurred on incremental deposits across different maturities, to decide on interest rates.
Private sector Axis Bank cut its MCLR in November by 0.15-0.20 per cent
Following the Reserve Bank of India (RBI) cutting its repo rate by 25 bps last month, public sector lenders — the United Bank of India, Cara Bank, Indian Bank, Indian Overseas Bank, Bank of India and the Syndicate Bank — as well as the private sector ICICI and Kotak Mahindra banks have cut lending rates. To nudge banks to transfer the benefit of RBI rate cuts, previous Governor Raghuram Rajan had announced a shift to the MCLR regime, under which banks need to consider their margil cost of funds, or the cost incurred on incremental deposits across different maturities, to decide on interest rates.
However, though Rajan — during his tenure — had cut rates by 150 bps since January 2015, banks had hardly moved at the same pace to cut their lending rates.
From the state-run banks’ point of view, their accumulation of massive non-performing assets (NPAs), or bad loans, that is impacting profitability, is keeping them from cutting rates. (IANS)