SBI cuts MCLR rate by 10 bps for one-year loan, deposit rates unchanged

This is the eighth cut in MCLR in this financial year and follows a 5 bps reduction last month; most banks have linked their lending rates to repo after introduction of the external benchmark system

The country’s largest lender, State Bank of India, has cut its marginal cost of fund-based lending rate (MCLR) by 10 basis points for loans with a one-year tenure to 7.9 per cent, effective December 10.

This is the eighth consecutive cut in MCLR in the current financial year (2019-2020), SBI said in a statement. Last month it had reduced MCLR by five basis points. The lending rate has been pared to pass on the benefit of its reduced cost of funds to customers, the bank added.

SBI has not changed the interest rate on term deposits for now. In November 2019 it had reduced deposit rates by 15 and 75 basis points on account of adequate liquidity in the system.
 

Similarly, Bank of India has reduced it's overnight MCLR by 20 bps and other maturity MCLR's by 10 bps with effect from December 10, 2019.
 

Overnight MCLR has been reduced from 7.95% to 7.75%, one month MCLR has been slashed from 8.20% to 8.10%, three month MCLR from 8.25% to 8.15%, while 6 month and 1 year MCLR from 8.30% to 8.20%.

The Reserve Bank of India, in its monetary policy review last week, said monetary transmission (of 135 basis points) had been full and reasonably swift across various money market segments and the private corporate bond market.

Credit market transmission for loans disbursed by banks remains delayed but is picking up. The one-year median MCLR has declined by 49 basis points, RBI added.

The transmission is expected to improve going forward, as the share of base rate loans, interest rates on which have remained sticky, declines; and MCLR-based floating rate loans, which typically have annual resets, become due for renewal, RBI said.

After the introduction of the external benchmark system, most banks have linked their lending rates to the policy repo rate of the Reserve Bank.

Overall liquidity in the system remained in surplus in October and November 2019. This was despite an expansion of currency in circulation due to festival demand. Average daily net absorption under the Liquidity Adjustment Facility (LAF) amounted to Rs1,98,566 crore in October, RBI said in policy.