Following Prime Minister Narendra Modi’s address to the nation, in which he urged banks to priorities lending towards poor and lower middle class, the country’s largest lender SBI cut benchmark interest rate across various maturities by 0.9 percent.
State Bank of India’s (SBI) decision to cut interest rates has had a cascading effect on other banks, some of whom have already followed suit, while others are expected to make similar announcements in the coming days.
SBI has reduced marginal cost of funds based lending rate (MCLR) by 0.9 percent from 8.90 percent to 8 percent for 1-year tenure, the bank said in a statement.
Banks use the MCLR for pricing home and car loans, adding a margin above the benchmark rate.
On Saturday, the Prime Minister asked banks to pay special attention towards poor and middle class.
“While respecting the autonomy of banks, I appeal to them to move beyond their traditional priorities and keep the poor, lower middle class and middle class at the focus of their activities,” he had said.
“India is celebrating the centenary of Pandit Deendayal Upadhyay as Garib Kalyan Varsh. Banks should also not let this opportunity slip. They should take appropriate decisions in public interest promptly,” he had said.
The heavy influx of cash deposits, due to demonetisation of high value currency, has allowed the interest rate for other tenures including one month, three months and six months to be reduced by 0.9 percent.
MCLR has been reduced by 0.9 percentage points to 8.10 percent for two years and 8.15 percent for three years.
The current benchmark is the lowest rate for SBI in six years, since 2011. SBI in total has cut its benchmark lending rate by 200 basis points since January 2015.
Following SBI, other public sector lenders like Punjab National Bank (PNB) and Union Bank of India (UBI) have also brought down the benchmark interest rate by up to 0.9 percentage points.
PNB has cut its one-year MCLR rate by 0.7 percentage points to 8.45 percent from 9.15 percent. Similarly, Union Bank of India has reduced its MCLR by up to 0.9 percentage points.
Last week, State Bank of Travancore had announced reduction in the lending rate and public lender IDBI had also reduced it by up to 0.6 percent.
The move to lower interest rates was welcomed by Economic Affairs Secretary Shaktikanta Das, who tweeted, “Trend of interest rate reduction follows demonetisation. Banks have substantial quantum of low cost funds now.”
“Welcome reduction of interest rates by SBI. Loan disbursements expected to pick up. Positive for the economy,” he added.
RBI had introduced MCLR to ensure fair interest rates to borrowers as well as banks. It was adopted as the new benchmark lending rate from June and is calculated on the marginal cost of borrowing and return on net worth for banks.
Reportedly, the Reserve Bank of India (RBI) is likely to cut rates further this year due to the falling inflation and banks may further reduce their lending rates.Back to latest news