SBI cuts rates, says more next time

Mumbai: A day after the central bank announced several measures to  boost liquidity and bring down the cost of funds for lenders, State Bank of India and Bank of India announced a cut in their marginal cost of funds-based lending rate (MCLR).

SBI announced a reduction in its MCLR by 5 basis points across all tenors while BOI cut MCLR by 10 basis points for maturities up to six months.

SBI’s one-year MCLR to which home loans are linked will now stand at 7.85 per cent per annum from 7.90 per cent.

The actual effective home loan interest rate of SBI will, however, depend on the loan amount and other factors. However, the impact of MCLR cut may not be immediate as there is a reset-period clause in MCLR-based home loan contracts which is generally of 12 months after which the interest rate gets reset.

Similarly, BOI housing loan will now be available starting from 8 per cent per annum and vehicle loan from 8.5 per cent.

The reduction for both lenders is effective February 10.

In a release, SBI said the impact of recent RBI policy measures and reduction in deposit rates will be reflected in the next review of MCLR.

In view of surplus liquidity in the system, SBI also said it is realigning its interest rate on retail term deposits (less than Rs 2 crore) and bulk term deposits (Rs 2 crore and above). The bank slashed term deposits rates by 10-50 bps in the retail segment and 25-50 bps in the bulk segment.

Banks have been reluctant in aligning their lending rates in response to the rate cuts as effective transmission of rates was mere 69 basis points against 135 bps of rate cuts by the RBI during February to October 2019.

The RBI on Thursday allowed banks exemption from maintenance of CRR on incremental disbursement on auto, housing and MSME loans. The CRR is the percent of cash deposits a commercial bank must maintain with the RBI. This money earns no interest. The current CRR level is 4 per cent, which means that for every Rs 100 of deposit that a bank holds, it keeps aside Rs 4 with RBI.

The RBI has now said that new retail and MSME loans disbursed till July 31, 2020, will be adjusted against a bank’s CRR requirements while ensuring that banks meet at least 90 per cent of their CRR requirements.

This would free up the banks to monetise more of their liquidity and over the next few months should soften interest rates further.