Axis doesn't see big hit on margins with new base rate model

Even though analysts have said the proposed marginal cost-based base rate computation will heavily eat into the profits of lenders, Axis Bank today maintained it does not see a significant fall in its base rate under the newly suggested formula.
"Based on our understanding of the marginal cost of funding (MCF) formula, it's not going to make a significant impact on our base rate," Axis Bank Managing Director and Chief Executive Shikha Sharma told reporters here.
The third largest private lender has been following a very disciplined approach in computing its base rate and will change the same as and when the new regulation sets in (from next April), she said.

After the release of a draft paper on the MCF-based base rates, rating agency Crisil had said the guidelines in their current form would impact banks' profitability by a whopping Rs 20,000 crore as base rates will get corrected by up to 0.50 per cent.
"The RBI is actually looking at it in a thoughtful manner to look at how the balance sheet's asset side has to get repriced and how the cost structure will move on the liabilities side," Sharma said.
On September 1, the RBI issued a draft on a uniform methodology for calculating base lending rate to ensure effective transmission of its policy rate decisions by banks.

Many banks currently follow average cost of funds or 'blended cost of funds (liabilities) method' for calculating the base rate, while a few already take into account the proposed measure of 'marginal cost of funds'.

"For monetary transmission to occur, lending rates have to be sensitive to the policy rate," said draft guidelines on 'Transmission of Monetary Policy Rates to Banks' Lending Rates - Base Rate Guidelines'.
As per the draft, components of base rate will include cost of funds, negative carry on CRR/SLR, un-allocable overhead costs and average return on networth. "The marginal cost of funds should be used for computing the cost of funds. The marginal cost should be arrived at by taking into consideration all sources of fund other than equity," it said.

Asked if it is interested in a tie-up with a payments bank, Sharma said, "we are very happy to partner and do partnerships wherever there is synergy and we are very happy to explore that. But payments is at the core of many of our businesses.