Public sector banks volunteer to link their lending rates to repo

Analysts said this would possibly squeeze the banks' profit margins because lending rates could not be lowered immediately

Several public-sector banks on Friday volunteered to link their lending rates to the repo rate to facilitate quicker transmission, even as some reduced their marginal cost-based lending rate (MCLR) over the past two days.

The cuts follow State Bank of India’s (SBI’s) reduction in the lending rate by 15 basis points (bps) after the Reserve Bank of India’s (RBI’s) repo rate cut by 35 bps, on Wednesday. 

This in effect is an external benchmarking of the lending rates, which even the RBI has kept on hold for now, considering banks’ profitability concerns.

The RBI is expected to cut its repo rate by another