Lending rates of State Bank of India have been revised, based on marginal cost of funds, and these rates would come into effect from tomorrow.
SBI’s official website stated that, the new interest rates vary from 8.95% for overnight to 9.35% for 3 years. The bank’s base rate or the minimum lending rate is 9.3%.
The website mentioned the other lending rates as 9.05% for 1 month, 9.10% for 3 months and 9.15% for 6 months. For 1 year loan, the interest rate would be 9.20%, while for 2 years it is going to be 9.3%.
RBI had asked banks to price fixed rate loans of up to 3 years based on their marginal cost of fund from April 1st. Marginal Cost of Funds based Lending Rate (MCLR) system is a new uniform methodology that ensures fair interest rates to borrowers, as well as to banks, who will follow it from tomorrow.
Basing on the average cost of funds, currently, most of the banks decide the lending rates. According to India Ratings and Research (Ind-Ra), MCLR has the potential to channelize the recent surge of volumes in the commercial paper market towards bank credit.
Ind-Ra expects the shortest tenor MCLR for bigger banks to be around 90-100 basis points lower than the base rate, while making it comparable to commercial paper rates with similar tenor.
On the longer end (one year rate) considering the 70-75 basis points of tenor premium evident in the market, the difference from the base rate is expected to be 25-30 basis points.
SBI’s website further stated that, the MCLR is expected to address the RBI's primary objective, of expediting monetary policy transmission, along with augmenting uniformity and transparency in the calculation methodology of lending rates.
In financial year 2016-2017, Ind-Ra expects banks margins to face downward pressure on the back of this transition. However, the impact differs from bank to bank, based on the variances in their Asset Liability Management (ALM) gaps, floating rate book, current account savings account (CASA) ratios, share of borrowing in the funding profile and differences in their operating cost structure.
By Phani Ch
