Banks, home finance firms take SBI cue, cut lending rates

Joining the rate-cut bandwagon set rolling by the country's largest lender State Bank of India (SBI), several banks and housing finance companies, including HDFC, on Tuesday lowered their lending rates by up to 0.9 per cent - which will lead to cheaper home and corporate loans.

Among other banks, Corporation Bank, Bank of India and Punjab & Sind Bank slashed their marginal cost of funds-based lending rate (MCLR).

Taking a cue from SBI and other major lenders, mortgage finance companies HDFC Ltd and Indiabulls Housing Finance too reduced lending rate by up to 0.45 per cent.

Loans up to Rs75 lakh will attract interest rate of 8.7 per cent per annum, while it will be 8.75 per cent for higher amounts, HDFC said in a statement. A woman applicant will get a discount of 0.05 per cent in interest rate. HDFC's earlier benchmark rate was 9.1 per cent.

Besides, Bank of India reduced its MCLRs up to 0.9 per cent. For one year, the MCLR is now 8.50 per cent, down 0.75 per cent. However, overnight MCLR has been reduced by 0.9 per cent to 8.1 per cent effective 7 January.

Another public sector lender Punjab and Sind Bank lowered the one-year MCLR to 8.75 per cent, down by 0.8 per cent. At the same time, it also slashed base rate or the minimum lending rate by 0.05 per cent to 9.70 per cent effective today.

Corporation Bank also lowered 1-year MCLR rate by 0.7 per cent to 8.75 per cent.

A spurt in deposits due to demonetisation has provided banks space for lowering lending rates.

The reduction in lending rates may prompt an increase in credit offtake, which had moderated substantially, putting burden on balance sheet of banks.

More banks are expected to cut the lending rate in the coming days. Even fixed deposit rates are expected to come down and announcements to this effect are expected in the next few days.

Banks have switched to MCLR as their new benchmark lending rate from June last year, replacing the base rate system for new borrowers. It is calculated on the marginal cost of borrowing and return on net worth for banks. It was introduced by the Reserve Bank of India to ensure fair interest rates to borrowers as well as banks.

MCLR also seeks to address the regulator's primary objective of expediting monetary policy transmission along with augmenting uniformity and transparency in the calculation methodology of lending rates. MCLR rates are revised every month.