Note-ban effect: Surge in deposits helps PNB cut lending rate 70 bps

Venkatesan R Updated - January 12, 2018 at 03:53 PM.

Call this the demonetisation effect. Punjab National Bank (PNB) has reduced its overnight marginal cost of funds based lending rate (MCLR) to 8.20 per cent with effect from January 1.

Prior to this change, PNB’s overnight MCLR stood at 8.9 per cent. In effect, this public sector bank has reduced its lending rates by 70 basis points with effect from January 1.

Since November 2016, the extent of MCLR reduction had been to the tune of 85 basis points. Clearly, the slashing down of overnight MCLR by 70 basis points from January 1 comes in the wake of surge in deposits into PNB post November 8 demonetisation announcement.

This huge deposit inflow — estimated to be over ₹50,000 crore in the last 50 days — has led to sharp fall in the cost of funds for PNB and this benefit is now being passed to new borrowers through lower lending rates, sources said.

Even existing borrowers can opt for the new reduced lending rate, they added. Post the latest MCLR cut, PNB’s home loan rates have also been cut by 70 basis points to about 8.5 per cent.

Meanwhile, Economic Affairs Secretary Shaktikanta Das hailed the trend of banks’ cutting down their interest rates. “The trend of interest rate reduction follows demonetisation. Banks have substantial quantum of low cost funds now," Das tweeted on Sunday evening.

In another tweet, Das welcomed the State Bank of India's move to cut its MCLR by 90 basis points. “Welcome the reduction of interest rates by SBI. Loan disbursements expected to pick up. Positive for the economy," he tweeted.

Srivats.kr@thehindu.co.in

Published on January 1, 2017 12:40