SBI cuts lending rate by 15 bps

RBI promises steps for faster transmission to consumers

Hours after the Reserve Bank of India decided to cut interest rates for the fourth straight time, State Bank of India (SBI) responded with a 15-basis point (bps) cut in the marginal cost of fund-based lending rate (MCLR) — the benchmark lending rate.

SBI announced the reduction across all tenors with effect from August 10. With this reduction, its one-year MCLR will be 8.25%.

“With today’s MCLR cut, home loans have become cheaper by 35 bps since April 10, 2019,” SBI said. Since SBI has linked its home loan rate to the repo rate, those rates will also fall by 35 bps.

“With today’s cut in the policy rate, SBI’s effective Repo Linked Lending Rate (RLLR) for cash credit /over draft customers will stand revised to 7.65%,” SBI said.

Banks have been reluctant so far to reduce interest rate, which is evident from the fact that their MCLR declined 29 bps in response to the 75 bps repo rate cut by RBI between February and June. However, now more banks may follow suit.

Improved liquidity

“Evidently, this would go to reduce the lending rate offered by banks. With improvement in the liquidity position and reduction in deposit rates offered by banks, further reduction in lending rate are expected,” said Sunil Mehta, MD & CEO of Punjab National Bank and chairman of the Indian Banks’ Association. By the time the festive season sets in, the lower lending rate would help to boost domestic demand, he added.

RBI Governor Shaktikanta Das also said he expected more rate cuts by banks.

“We have a sense that there will be improvement [in monetary transmission]. RBI is monitoring it regularly. And in future, whatever steps are required for faster transmission of rates, RBI will not hesitate to take those steps,” Mr. Das said.

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