 "Commercial banks announce new lending rate structure")
As a step to improve transmission of monetary policy, commercial banks announced marginal cost of funds-based lending rates (MCLR), a new regime which kicks in from April this year.
The overnight MCLR rate of seven large banks, including State Bank of India (SBI), ICICI Bank, HDFC Bank and Axis Bank, varied between 8.95 per cent (SBI) to 9.15 per cent (Punjab National Bank).
Bank of India did not provide MCLR rates. Its officials said the public sector lender will like to study rates quoted by competitors and finalise its rates today. Banks are not open for public transactions on the first day of the new financial year (FY17), starting today.
New home loans from SBI, the country’s largest lender, will be cheaper by 10 basis points (bps) under the revised loan pricing regime that begins from Friday.
Under MCLR regime, SBI’s benchmark rate would range between 8.95 per cent (overnight) to 9.35 per cent (for three years).
The Reserve Bank of India (RBI) had prescribed the new system for all banks, to improve transmission of monetary policy. Instead of one benchmark rate, banks would indicate at least five. Starting with one for overnight tenors, banks would quote rates for one month, three months, six months and one-year buckets. RBI has left it to banks for giving more rates for longer periods.
Anshula Kant, deputy managing director at SBI, said the MCLR rate for a one-year tenor will be 9.2 per cent. At present, their home loan rate is 9.55 per cent (base rate of 9.3 per cent plus 25 bps premium). Under the revised regime, it could be with MCLR for one year of 9.2 per cent plus 25 bps premium or 9.45 per cent for home loans sanctioned from Friday.
Existing home borrowers would get the option to move to the new rate. They will be charged a switch fee, to be announced soon. There would be a saving of ~600 in equated monthly instalment on a one-year loan, Kant said. This tenor (one year) will be most crucial for banks, as a little more than 30 per cent of deposits have a maturity of this much. The change in deposit rates for this bucket would drive revision in the MCLR rates.
Deposit rates are expected to slide further in FY17, depending on liquidity conditions. Asked about revision in these rates, Kant said they’d review these after RBI announces its policy review on April 5.
India Ratings and Research said the shortest tenor MCLR for bigger banks would be 90-100 bps lower than the base rate, making it comparable to commercial paper (CP) rates with similar tenor. On the longer end (one-year rate), considering the 70-75 bps of tenor premium in the market, the difference from the base rate could be 25-30 bps.
Implementation of MCLR has the potential to channelise the recent surge of volumes in the CP market towards bank credit. CP dues as a percentage of short-term bank credit went up to 14 per cent in FY16 (from 11 per cent last year) and three to five per cent of this, which is ~74,500 crore to ~1,20,000 crore, is likely to flow back into the banking system as rates get competitive.
Banks with a higher share of stable current and savings accounts will see less impact. Those with a relatively higher mix of domestic borrowing (in the form of longer tenor senior or subordinated debt) will be better positioned (in the current decreasing interest rate scenario). MCLR calculations would entail borrowing costs to be computed on an average basis.
Analysts said existing large corporate borrowers might be able to negotiate with banks to shift their loans to MCLR, putting downward pressure on margins. Aggressive refinancing of better rated companies by banks with lower MCLRs is likely and this could further dent the competitiveness of many mid-sized public sector banks.
The MCLR computation also factors in all operating costs, which will mean inefficient banks get penalised more. Additionally, MCLR provides flexibility for banks to re-price their floating rate book, compared to the base rate regime.
Bank yields and margins will be volatile in the new regime and a prudent asset-liability match will become more important in managing competitiveness through interest rate cycles, the rating agency added.
RBI recently said fixed rate loans up to three years would also be linked to MCLR. This could put further pressure on the net interest margin of banks, as it removes the possibility of using the fixed rate structure for working capital loans, which has been driving incremental corporate credit growth, it said.
The overnight MCLR rate of seven large banks, including State Bank of India (SBI), ICICI Bank, HDFC Bank and Axis Bank, varied between 8.95 per cent (SBI) to 9.15 per cent (Punjab National Bank).
Bank of India did not provide MCLR rates. Its officials said the public sector lender will like to study rates quoted by competitors and finalise its rates today. Banks are not open for public transactions on the first day of the new financial year (FY17), starting today.
New home loans from SBI, the country’s largest lender, will be cheaper by 10 basis points (bps) under the revised loan pricing regime that begins from Friday.
Under MCLR regime, SBI’s benchmark rate would range between 8.95 per cent (overnight) to 9.35 per cent (for three years).
The Reserve Bank of India (RBI) had prescribed the new system for all banks, to improve transmission of monetary policy. Instead of one benchmark rate, banks would indicate at least five. Starting with one for overnight tenors, banks would quote rates for one month, three months, six months and one-year buckets. RBI has left it to banks for giving more rates for longer periods.
Anshula Kant, deputy managing director at SBI, said the MCLR rate for a one-year tenor will be 9.2 per cent. At present, their home loan rate is 9.55 per cent (base rate of 9.3 per cent plus 25 bps premium). Under the revised regime, it could be with MCLR for one year of 9.2 per cent plus 25 bps premium or 9.45 per cent for home loans sanctioned from Friday.
Existing home borrowers would get the option to move to the new rate. They will be charged a switch fee, to be announced soon. There would be a saving of ~600 in equated monthly instalment on a one-year loan, Kant said. This tenor (one year) will be most crucial for banks, as a little more than 30 per cent of deposits have a maturity of this much. The change in deposit rates for this bucket would drive revision in the MCLR rates.
Deposit rates are expected to slide further in FY17, depending on liquidity conditions. Asked about revision in these rates, Kant said they’d review these after RBI announces its policy review on April 5.
India Ratings and Research said the shortest tenor MCLR for bigger banks would be 90-100 bps lower than the base rate, making it comparable to commercial paper (CP) rates with similar tenor. On the longer end (one-year rate), considering the 70-75 bps of tenor premium in the market, the difference from the base rate could be 25-30 bps.
Implementation of MCLR has the potential to channelise the recent surge of volumes in the CP market towards bank credit. CP dues as a percentage of short-term bank credit went up to 14 per cent in FY16 (from 11 per cent last year) and three to five per cent of this, which is ~74,500 crore to ~1,20,000 crore, is likely to flow back into the banking system as rates get competitive.
Banks with a higher share of stable current and savings accounts will see less impact. Those with a relatively higher mix of domestic borrowing (in the form of longer tenor senior or subordinated debt) will be better positioned (in the current decreasing interest rate scenario). MCLR calculations would entail borrowing costs to be computed on an average basis.
Analysts said existing large corporate borrowers might be able to negotiate with banks to shift their loans to MCLR, putting downward pressure on margins. Aggressive refinancing of better rated companies by banks with lower MCLRs is likely and this could further dent the competitiveness of many mid-sized public sector banks.
The MCLR computation also factors in all operating costs, which will mean inefficient banks get penalised more. Additionally, MCLR provides flexibility for banks to re-price their floating rate book, compared to the base rate regime.
Bank yields and margins will be volatile in the new regime and a prudent asset-liability match will become more important in managing competitiveness through interest rate cycles, the rating agency added.
RBI recently said fixed rate loans up to three years would also be linked to MCLR. This could put further pressure on the net interest margin of banks, as it removes the possibility of using the fixed rate structure for working capital loans, which has been driving incremental corporate credit growth, it said.