Published on: Jan 3, 2017 @ 20:21
Top PSU banks led by State Bank of India, announced sharp cuts to their lending rates and slashed their benchmark lending rates by up to 90 basis points. The move has come after a recent surge in deposits after demonetization, making the cost of funds cheaper for banks and a day after Prime Minister Narendra Modi asked banks to priorities their lending towards the need of the poor, lower middle class and middle class.
Housing loans are all set to become cheaper with several PSU banks on Monday steeply reducing benchmark lending rate after spurt in deposits following demonetisation. On Sunday, besides State Bank of India (SBI), Punjab National Bank (PNB) and Union Bank of India also slashed their lending rates by up to 0.9 percent.
Home loan rates of SBI have fallen to their lowest level in six years to 8.60 percent from 9.10 percent after reducing the marginal cost of lending rate (MCLR) by 90 basis points effective from January 1, 2017 for maturities ranging from overnight to three-year tenures. Following the reduction by 0.9%, SBI’s one-year MCLR has come down to 8% from 8.9%.
However, SBI kept the spread above MCLR at 60 basis points, against 20 basis points earlier. So, with the cut in MCLR rate, MCLR at 60 basis points, against 20 basis points earlier. So, with the cut in MCLR rate, SBI has brought down the home loan rate in the floating rate category to 8.60 per cent for women borrowers against 9.10 percent earlier and to 8.65 per cent for others against 9.15 percent earlier on loans up to Rs. 75 lakh. For loans above 75 lakh, the rate is 8.65 percent for women borrowers and 8.70 percent for others.
SBI also reintroduced a loan product, where loans will be available at a fix rate for the initial two years and at a floating rate in subsequent years. Women borrowers can avail home loans up to Rs 30 lakh at a fixed rate of 8.5% for the first two years of the tenor of the loan and at a floating rate in subsequent years. For others, the home loan rate has been fixed at 8.55 % for the first two years. Now, State Bank of India (SBI) offering home loans as cheap as 8.5%, the lowest in six years.
Apart from the regular home loan products, SBI has also announced a slew of retail loans including “insta top-up” on mortgages and “bridge loan” for those who want to buy a new house before their old house is sold off. An instant top-up product, where customers will be allowed a top-up loan for home improvement at 1% over the one year MCLR. The bank will provide a bridge loan of two-year to buy the new house at 10.45% in the first year and 11.45% in the second year, within which the old house is expected to have been sold off.
So, SBI has passed on benefit of 200 bps since January 2015 to customers, which is more than 175 bps reduction in the Reserve Bank Of India’s (RBI) policy rate cut in the same period.
Other public sector lenders Punjab National Bank (PNB) and Union Bank of India (UBI) also slashed their MCLR rates on Sunday and have brought down the benchmark interest rate by up to 0.9%.
PNB has cut its one-year MCLR rate by 0.7 percent to 8.45 percent from 9.15 per cent, effective from Monday. Similarly, Union Bank of India has reduced its MCLR by 0.65-0.9% to 8.65%, effective Monday. The revised one-year MCLR stands at 8.65%.
Taking a cue from State Bank of India, several other lenders including Oriental Bank of Commerce, Andhra Bank, IDBI Bank, Indian Overseas Bank and Dena Bank announced cut in marginal cost of funds based lending rate (MCLR) with effect from the New Year.
Oriental Bank of Commerce has reduced the one-year MCLR rate by 0.8 per cent to 8.60 percent while Andhra Bank has brought it down by similar percentage point to 8.65 percent effective on Tuesday.
Dena bank has reduced marginal cost of funds based lending rate (MCLR) by 0.75 per cent to 8.55 per cent for 1 year tenor, the bank said in a statement.
The reduction in MCLR will mean that new borrowers will get loans at the cheaper rates. Since home loans are linked to one-year MCLR, the rates are locked in for 12 months. Older loans will get the benefit of the new rates only after their one-year lock-in ends. Those who had availed loans before April 2016 would have their EMIs linked to the earlier benchmark, the base rate. These borrowers will have to enter into a fresh contract with the bank to get loans linked to MCLR.
The RBI has not yet released the final numbers of deposits banks have attracted since PM Narendra Modi’s government’s decision on November 8 to ban the higher denomination notes to fight corruption, black money and bring unaccounted cash to the economy. According to an earlier report by RBI, banks had received an estimated Rs 12.5 lakh crore deposits till 10th December 2016.
According to SBI officials, it has received about Rs 1.5 lakh crore in low-cost deposits in current and savings accounts (CASA). Banks are flush with funds after the note ban, with Rs 2.4 lakh crore having been deposited with banks till December 10. SBI chairman Arundhati Bhattacharya said, “There is huge liquidity with the bank due to the large flow of deposits. This has driven us to reduce lending rates, which, hopefully, will kickstart credit demand and growth.”
The inflow of huge deposits into banks since November 8 had raised expectations that banks would cut lending rates. Now, banks are facing a challenge of deploying the large amounts that are lying with them after the scrapping of Rs 500 and Rs 1000 notes. This money when given as loan would fetch more returns. These rates cut by several banks will lead to lower borrowing costs and help credit growth in the economy.
Ajay Verma, founder and writer of TheHousingWorld, a real estate and mortgage news website. He has over fifteen years of rich experience in the above mentioned industries.