Money & Banking

SBI plans to cut MCLR by 5 basis points across tenors

Our Bureau Mumbai | Updated on February 07, 2020 Published on February 07, 2020

 

 

State Bank of India (SBI), on Friday, said it will pare its marginal cost of funds-based lending rate (MCLR) by 5 basis points (bps) across all tenors. Simultaneously, it will also reduce retail and bulk deposit rates by up to 50 bps. The new MCLR and deposit rates will be effective from February 10.

One basis point (bp) is equal to one-hundredth of a percentage point. By cutting deposit rates more steeply than MCLT, India’s largest bank is seeking to protect its margins. SBI said its one-year MCLR will decline to 7.85 per cent from 7.90 per cent. This is the ninth consecutive cut in MCLR in FY20, the bank added.

All rupee loans sanctioned and credit limits renewed by banks with effect from April 1, 2016, are priced with reference to the MCLR, which is the internal benchmark for such purposes.

The Reserve Bank of India, however, has made it mandatory for banks to link all new floating rate personal or retail loans and floating rate loans to micro, small and medium enterprises (MSMEs) to an external benchmark effective October 1, 2019.

New term deposit rates

In the case of retail domestic term deposits (below ₹2 crore), the highest interest that SBI will offer is 6 per cent on all maturity buckets from one year up to 10 years, against 6.10 per cent at present.

In the case of retail domestic term deposits (₹2 crore and above), the highest interest that SBI will offer is 4.75 per cent on all maturity buckets from 180 days up to 10 years, against 5.25 per cent at present.

“The impact of the recent RBI policy measures and reduction in deposit rates will be reflected in the next review of MCLR,” SBI said in a statement. What this means is that there could be further softening.

In its sixth monetary policy review announced on February 6, the RBI unveiled a long-term repo operation (LTRO) facility, whereby it will provide banks with one-year and three-year funds, aggregating up to ₹1 lakh crore, at the policy repo rate of 5.15 per cent.

Further, the central bank said it will allow scheduled commercial banks to deduct the equivalent of incremental credit disbursed by them to specific sectors (retail loans for automobiles, residential housing and loans to micro, small and medium enterprises) as of the fortnight ended January 31from their deposits for the maintenance of cash reserve ratio (CRR).

This exemption will be available for incremental credit extended up to the fortnight ending July 31. CRR is the slice of deposits that banks have to park with the RBI. It is currently at 4 per cent of their deposits.

Published on February 07, 2020
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