Bank margins face multiple headwinds

While rate cuts may increase churn between banks, these may not boost credit off-take meaningfully

A telecom moment for the banking sector” was how a banking analyst with a reputed brokerage summed up the lending rate cut frenzy by banks in the past couple of days. Though the Street was expecting some cuts (30-40 basis points) in the marginal cost of funds-based lending rate (MCLR), the sharp 90-bp cut by State Bank of India (SBI) has taken many by surprise. Given that most banks have followed SBI’s lead, this could lead to a pricing war in the banking sector, akin to the one playing out in telecom, and eat into banks’ profitability. 

“Considering a