The country’s largest bank State Bank of India (SBI)announced a steep interest rate cut in several years on Sunday,by reducing its marginal cost of funds based lending rate(MCLR)by 90 basis points(bps)across all maturities.
With this cut,SBI has passed on benefit of 200 bps since January 2015 to customers,which is more than 175 bps reduction in the Reserve Bank of India’s(RBI)policy rate cut in the same period.
The new rates come into force from today.SBI’s one-year MCLR stands reduced to eight percent from 8.9 percent,while the rate on overnight loans is now 7.75 percent,against 8.65 percent.
Banks are flush with funds after the note ban, with Rs.12.4 lakh crore having been deposited with banks till December 10.SBI chairman Arundhati Bhattacharya said, “There is huge liquidity with the bank due to the large flow of deposits. This has driven us to reduce lending rates,which, hopefully,will kick-start credit demand and growth.” Two other public sector lenders — Punjab National Bank(PNB)and Union Bank of India — also slashed their MCLR rates on Sunday.
Delhi-based PNB cut lending rates by 70bps,while Mumbai based Union Bank reduced its MCLR by 65bps to 90bps across different tenors.
Senior bank officers said other lenders would follow suit and reduce loan rates by 50-100 bps to remain competitive.Also,the actual benefit spread that banks charge over the loans rate.
The large deposits that came into banks since November 8 had raised expectations that banks would have room to cut lending rates,which is seen as vital to increasecredit growth and spark a revival in received aboutRs.1.5lakh crore in low-cost deposits in current and savings accounts(CASA).
The share of CASA in SBI’s total deposits was 42.74 per cent in September 2016,which has now gone up to 45percent
Business Standard New Delhi,02th January 2017
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