Cheaper Loans On The Cards; ICICI Bank Cuts Rate
ICICI Bank cuts lending rate post RBI rate cut; other banks to follow suit
The Reserve Bank of India’s decision to cut its policy rate by 25 basis points was cheered by the markets and it seems borrowers may soon have something to cheer about too.
ICICI Bank reduced its lending rate by 5 basis points soon after the policy announcement. India’s largest lender, State Bank of India (SBI) may also follow suit if the cost of funds drops as a result of RBI’s policy stance.
ICICI Bank’s 5-basis-point reduction takes its one-year marginal cost lending rate (MCLR) to 9.05 percent, with effect from October 1. Earlier in the day, the bank’s Chief Executive Officer, Chanda Kochhar said the reduction in the rate by the RBI would give a strong impetus to both consumption and investment led growth for the country.
SBI’s managing director and head of National Banking, B Sriram said lending rates will soften going forward but cautioned that borrowers should not expect a steep drop in one-go.
“SBI reviews its marginal cost lending rate every month and we will take a call on rates based on the way cost of funds move during the course of the month,” said Sriram. “Since the adjustment in costs is in small doses, the adjustments are usually 5-10 basis points. Over a period of time, rates should soften.”
Banks have been criticised for not passing on reductions in the policy rate to their consumers. Since 2015, including the latest 25-basis-point reduction, the RBI has cut the repo rate by 175 basis points.
During the same period, SBI first reduced its benchmark lending rate, which was then calculated according to the base rate system, from 10 percent to 9.3 percent. Since the marginal cost of funds lending system came into effect on April 1, SBI cut its rate a little further, and its one-year rate currently stands at 9.1 percent.
Banks, which earlier said tight liquidity conditions were preventing lending rate cuts, are now citing high costs as a result of non-performing assets and the low demand for large corporate credit as barriers to lowering rates further.
On Tuesday, RBI governor Urjit Patel and government representatives seemed to nudge the banks towards cutting rates.
“Welcome rate cut by the RBI. Expect banks to follow it up with effective transmission of rates,” said Shaktikanta Das, Economic Affairs Secretary.
We expect banks to respond to the RBI’s rate cut, said RBI governor Urjit Patel when asked about whether the transmission of lower rates would improve.