After State Bank of India, Kolkata-based United Bank of India is planning to link retail loan lending rates with the repo rate.
According to Ashok Kumar Pradhan, managing director and chief executive officer, United Bank of India, the move to link the two rates is aimed at improving rate transmission.
This apart, the bank is also planning to reduce MCLR by a “substantial percentage” in the next few days, he said.
Few months back, SBI had linked savings account deposits and short-term loans with the repo rate.
However, United Bank of India, as of now, is not planning to link repo rate with savings account deposit rate.
Initially, at United Bank of India, the linked repo rate lending will be applicable only for housing and car loans, and later extended to other segments of retail loans as well.
“The idea to link repo rate to retail lending is to link the lending rates with an external benchmark, leading to a better transmission of rates,” said Pradhan.
Recently, RBI had gone for one of the steepest cuts in repo rate, by 35 basis points to 5.4 per cent. This was the fourth consequent rate cut by RBI, leading to a cut by 1.1 per cent in this calendar year. While RBI had been nudging banks reduce MCLR, most banks have been slow in transmission of the rate cut to borrowers.
After RBI had cute repo rate by 35 basis points, SBI had reduced benchmark lending rates by 15 basis points across tenors.
“Our interactions with various stakeholders, including both public sector and private sector banks, indicate that steps are being taken by them on an ongoing basis to progressively lower their interest rates so that the benefits of the policy rate reductions are passed on to the economy. Accordingly, we expect higher transmission of monetary policy actions and stance by the banks in the weeks and months ahead,” RBI governor Shantikanta Das had said in the recently held, third Bi-monthly Monetary Policy, 2019-20.