Axis Bank pegs MCLR at 9.35%, trims base rate by 5 bps to 9.45%

Private lender Axis Bank on Tuesday announced a 15 basis point reduction in its marginal cost of lending rates (MCLR), bringing it closer to the rates of its competitors such as HDFC Bank and ICICI Bank.

Axis Bank has reduced its MCLR by 15 basis points across all tenures and the change in rates will be effective 18 April, says a press release.

Axis Bank said its one-year MCLR will now be at 9.35 per cent, down from 9.5 per cent the bank had announced as on 1 April.

Two-year MCLR is set at 9.45 per cent, while three-year rate will be 9.5 per cent, the bank said.

Against this, the MCLR for State Bank of India and HDFC Bank is 9.2 per cent, while it is 9.25 per cent for Bank of Baroda.

Axis Bank also trimmed its base rate by 5 basis points to 9.45 per cent against the industry low of 9.3 per cent.

The reduction in Axis Bank's lending rates, which follows a 25 bps reduction in the Reserve Bank of India's (RBI) key repo rate announced on 5 April, would lower borrowing cost for the bank's customers.

RBI is insisting that banks base their lending rates on their deposit rates or the cost of loanable funds available at any time.

''The MCLR mechanism is expected to ensure more effective transmission of changes in monetary policy rates for new borrowings. This is illustrated by our reduction in MCLRs as soon as market rates reduced,'' Shikha Sharma, MD and CEO, Axis Bank, said.

Banks have so far been disbursing loans based on their base rates or the lowest rate below which they cannot lend. These rates are fixed at longer intervals as they have to bring their deposit rates down in order to ensure margins.

The RBI said the MCLR will provide an effective transmission mechanism for rate reductions by it. Besides, the MCLR guidelines will ensure availability of bank credit at interest rates which are fair to borrowers as well as the banks.

Banks will have to review and publish their MCLR of different maturities every month on a pre-announced date. The MCLR prevalent on the day the loan was sanctioned will be applicable till the next reset date, irrespective of the changes in the benchmark during the interim period.

Existing loans and credit limits linked to the Base Rate may continue till repayment or renewal and existing borrowers will also have the option to move to the MCLR-linked loan at mutually acceptable terms.