MCLR:Icra sees limited gains for home loan buyers,bank margins

Home loan customers are unlikely to benefit much from the marginal cost of funds-based lending rates (MCLRs), which is expected to bring down the borrowing rates in the system, according to Icra Ratings.
The domestic ratings agency said there will be a "limited interest rate relief for home loan borrowers" primarily because of segment leader State Bank of India's stance.
It said SBI has pegged the home loan rates to the one-year tenor MCLR at 9.2 per cent. When one adds the spread of 0.25 per cent for home loans of up to Rs 20 lakh, this takes the rate to 9.45 per cent. This is only marginally lower than the 9.55 per cent under the previous base rate system, it said.

"Since SBI is the market leader in home finance, Icra expects other key lenders to follow suit and avoid any price war in the Rs 12-trillion home loan market," the agency said.
The net interest margins are unlikely to be affected by the MCLR framework, it added.
The home loan market is one of the most competitive and a segment every bank is very keen to expand into because of the asset quality stress on wholesale funding.

Even as RBI Governor Raghuram Rajan asserted that bank rates have come down by an average of 0.25 per cent because of MCLR adoption and guided towards lower interest rates, the agency said the one-year median MCLR is lower by only 0.15-0.20 per cent across banks.

This is likely to result in fund raising through commercial papers and bonds to continue to grow at a pace higher than banks' credit growth, it said.
Even as expectations get built that the MCLR will help in faster transmission of policy actions, the agency said it is possible only if the lenders cut their deposit rates.
After cutting the key policy rate by 0.25 per cent, Rajan had yesterday drawn attention to the introduction of the MCLR to say that the actual cost of borrowing is on the way down.