State Bank of India (SBI) Monday cut its lending and deposit rates across all tenures, the second such reduction in the past one month. The country’s largest bank said it has reduced lending rates by 10 basis points across all tenors. The one-year marginal cost of lending rate (MCLR) will stand reduced to 8.15% from 8.25% with effect from 10 September.
This will be the fifth consecutive cut in MCLR in 2019-20. During the same period, RBI has the cut repo rate by 85 basis points.
SBI also reduced its deposit rates by 20-25 basis points and bulk deposit rates by 10-20 basis points across tenures. “In view of the falling interest rate scenario and surplus liquidity, SBI also realigns its interest rate on term deposits w.e.f. September 10," the bank said in a press release. For FDs maturing in one year to less than two years, SBI has cut the rate by 20 basis points to 6.50% from 6.70%.
Axis Bank, HDFC Bank, Punjab National Bank, Bank of Baroda, Canara Bank and Kotak Mahindra Bank have also revised their FD interest rates in select buckets.
The linking of retail floating loans to an external benchmark kicks in from 1 October, which will be applicable to new loans. SBI’s reduction of its MCLR rate is to keep retail interest sticky during the intervening period. “Liquidity position has been comfortable for the bank. Depending on the banks’ requirement of funds, we have been reducing MCLR and also repo-linked rates. We are hoping that this will spur some demand during the festive season," said Praveen Kumar Gupta, managing director, retail and digital banking, SBI.
“The bank (SBI) has increased the transmission of monetary policy by reducing MCLR by 25bps again over the last 1 month. Further, it has reduced deposit rates in different buckets so that margins remain intact. However, we see margin pressure in the second half of the current financial year," said Asutosh Mishra, head of institutional research, Ashika Stock Broking.
The cut in rates comes in the backdrop of a consumption slowdown and a deteriorating global environment. The government is looking to front-load capital spending this fiscal to support growth. Finance minister Nirmala Sitharaman had announced a reversal in tax increase on FPIs, and steps were also taken to boost the auto sector and deepen the bond market. She also promised to infuse ₹70,000 crore into state-run banks to improve balance sheets and help finance new projects, apart from merging 10 banks into four large institutions for greater efficiencies of scale.
The Reserve Bank of India too announced measures such as asking banks to mandatorily link all new floating rate loans with an external benchmark from 1 October.
The new rule will be applicable to floating rate loans to retail, personal and MSME borrowers. Banks will have the option to benchmark the loans either to the repo rate, and the government of India’s three-month or six-month Treasury Bill yield, or any other benchmark market interest rate published by the Financial Benchmarks India Pvt. Ltd.
On 5 September, Mint had reported that private sector banks could see a margin squeeze after the RBI move. Margins of private banks seem more susceptible to interest rate volatility because of their greater exposure (as a percentage of their total loans) to retail and small business loans compared to their state-run peers. Among private banks, only Federal Bank and IDBI Bank have so far linked lending rates to an external benchmark.
With the RBI issuing guidelines on linking loans to an external benchmark, the next step for banks is to link savings deposit rates to an external benchmark. Since savings bank accounts are sticky in nature, banks believe that their asset liability will be better managed.
Separately, Bajaj Housing Finance Monday announced a cut in home loan rates from 8.8% to 8.6% for amounts of up to ₹30 lakh.