State Bank Of India’s Steep Rate Cut Prompts Other Lenders To Follow
Time to buy dream home. SBI cuts rate by 90 bps in an attempt to increase credit offtake.
State Bank of India’s decision to cut benchmark lending rates steeply has prompted other state-owned lenders to follow the market leader. Atleast four other large and mid-sized public sector banks and one private lender had announced rate cuts by mid-morning on Monday.
Flush with low-cost deposits since November 8, State Bank of India had, on Sunday, announced a cut in its marginal cost of lending rate, or MCLR, by 90 basis points across all maturities. One basis point is one hundredth of a percent
The country’s largest bank has reduced its key one-year benchmark MCLR to 8 percent per annum. The one-year benchmark is used for pricing home and car loans. The aim is to increase the bank’s loan portfolio, Rajnish Kumar, managing director, SBI, told BloombergQuint over the phone.
We are flush with funds and credit offtake is nil. The expectation is that it will help us in increasing the loan portfolio because, otherwise, a lot of money is going into treasuries, low-yielding instruments. As a result, if the credit offtake improves, the impact will be neutralised.Rajnish Kumar, Managing Director, State Bank of India
In a separate release on Monday, SBI pegged its home loan rate at 65 basis points above the 1-year MCLR for loans upto Rs 75 lakh.
In addition, SBI is also pushing another ‘teaser’ loan scheme by offering customers the option to pick a fixed rate of interest of 8.55 percent for the first two years, following which the interest rate would move to the floating rate.
The spread over MCLR is determined by the risk premium as well as the competitive position in the market. 90bps is highly competitive and if the competition is nowhere near, plus the risk premium, we will have a re-look. So the spread and competition, both will be taken into account (to determine home loan rate). There will be very good savings for customers.Rajnish Kumar, Managing Director, State Bank of India
SBI, which also lends to housing finance companies, will reset these loans at the beginning of next cycle, Kumar said. Housing finance companies like HDFC Ltd. are expected to reduce their rates depending on their cost of loans.
HDFC and ICICI Bank Ltd. are yet to announce their lending rate for the month of January.
SBI's new rates will be effective January 1, 2017. The bank has so far reduced the benchmark rate by 200 bps since January 2015, according to its filing to the exchanges.
Others follow
Union Bank of India also reduced its one-year benchmark MCLR to 8.65 percent from 9.30 percent. Punjab National Bank, another public sector lender, cut its MCLR by 70 bps. The bank’s one-year MCLR now stands at 8.45 percent. Dena Bank and IDBI Bank, too have announced a cut in rates.
Among private lenders, Kotak Mahindra Bank has cut its one-year MCLR by 20 basis points to 9 percent.
HDFC Ltd will review its rates in the first week of January. The cost has come down over the last few months, Keki Mistry, vice-chairman, HDFC Ltd., told BloombergQuint over the phone.
.png?auto=format%2Ccompress)