Banks follow RBI cut, loan rates inch downward

MUMBAI: A host of banks have reduced lending rates in response to the cut by the RBI in its policy in June. While ICICI Bank has cut its marginal cost of lending rate (MCLR) by 10 basis points (100bps = 1percentage point), SBI has brought down home loan rates by introducing a repo-linked housing loan with effect from July 1. ICICI Bank’s MCLR, to which its home loan is tied, now stands at 8.65%. Among other lenders, Punjab National Bank (PNB) and Central Bank of India have brought down their MCLR by 5bps across tenures. PNB’s one-year MCLR now stands at 8.4%, while for Central Bank of India it is at 8.5%. The RBI, in its monetary policy meet on June 5, had announced a 25bps cut in the repo rate to 5.75%.

Bankers said the revision in the MCLR will follow a reduction in deposit rates as the MCLR is calculated on the basis of cost of funds using a fixed formula. Several banks had reduced their deposit rates marginally in the wake of the RBI rate cut. While ICICI Bank, Axis Bank and HDFC Bank had recently revised their deposit rates, SBI has been the first to link its interest rate on large savings accounts to RBI’s repo rate. It was following this re-pricing that the bank linked its home loan rate to the repo rate. SBI’s high-value savings account get interest of 275bps below the repo rate.

According to news reports, the finance ministry will lean on public sector banks to bring down interest rates. Last week, the government brought down interest rates on small savings, which was seen as one of the barriers for banks in bringing down their cost of funds from retail investors.