With a bulk infusion of fresh liquidity arising from demonetisation, banks, both public and private, yesterday slashed lending rates, leading to home loan rates falling to their lowest level in six years.
ICICI Bank has announced a reduction of 0.70% in marginal cost of funds-based Lending Rate (MCLR) benchmarks across tenures effective from today while Bandhan Bank Ltd has cut its MCLR by 148 basis points to 10.52% per annum.
Dena Bank also slashed its MCLR by 75 basis points from 9.30% to 8.55% for one year tenure.
The country’s largest lender State Bank of India cut its lending rates by 90 basis points for maturities ranging from overnight to three-year tenures after experiencing a surge in deposits.
Under the MCLR, banks need to consider their marginal cost of funds, or the cost incurred on incremental deposits across different maturities, to decide on interest rates.
State-owned IDBI Bank has also cut in its MCLR by 30-60 basis points effective Sunday while Punjab National Bank slashed its lending rates across maturities ranging from overnight to five years with the new rates.
Following the Reserve Bank of India (RBI) cutting its repo rate by 25 bps in October, public sector lenders - the United Bank of India, Canara 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.
Meanwhile SBI chairperson Arundhati Bhattacharya said the deposit rates also soon require a “relook.”
She said the banks have huge low-cost funds driven by deposits following the demonetisation drive and these will flow out. “But we expect 40% of that to stay with the bank,” she added.
“At that time, we will have a relook at the deposit rates,” she told reporters at a press conference in Mumbai.
Bhattacharya said she saw normalcy returning to the banking system by end-February or March, with uptake in credit growth.
Her reference was to the events following the demonetisation of Rs500 and Rs1,000 currency notes, which put enormous pressure on commercial banks in servicing people for exchanging or depositing the old currency.
Referring to the rate cut announced on Sunday, Bhattacharya said: “This is a liquidity-driven rate cut. The liquidity in the system is unprecedented, in terms of the fact that what we did in the first nine months of the year, we have done one-and-half times that in 30 days.”
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