Punjab National Bank's Managing Director and Chief Executive Officer Sunil Mehta said that within a week's time, the lender will come up with a set of loan products to be benchmarked to the policy rate.
Sticky lending rates on home, auto and other loans may see some respite as banks have started passing on the benefits of past policy rate cuts. While some lenders have decided to link retail loans to the central bank's policy rate, Axis Bank is of the view that there are other ways to carry out monetary transmission.
Axis Bank's executive director Rajiv Anand said that liquidity surplus in the banking system will allow lenders to cut lending rates even under the existing framework of marginal-cost based lending rate (MCLR).
His comments come on the day when RBI Governor Shaktikanta Das said that the central bank expects lenders to take the initiative on external benchmarking and speed up the process to support economic growth. Das also indicated that the regulator may formalise the arrangement for better transmission.
"It is not necessary to use only external benchmarks, there are multiple avenues such that we are able to meet the requirement that the RBI wants. Given the fact that the underlying liquidity is very easy, the ability of banks now to be able to pass on, what you will now find that...even with the MCLR environment, transmission will certainly be much faster than what you've seen so far," Anand said.
Anand also pointed out that linking retail loans to policy rate may not be the way to go as it is more volatile than MCLR. "Generally, we have seen that retail customers, when the rates are falling, they want to see faster transmission but remember that faster transmission will happen on the way up as well," he said, adding that corporate houses may prefer rates linked to policy rates since they are better placed to manage interest rate risks.
On August 17, Axis Bank lowered its MCLR by 10 basis points across tenors, in response to RBI's policy rate cut of 35 basis points earlier this month.
The RBI relased a report on external benchmarking more than a year ago but hadn't made it mandatory for banks yet. State Bank of India (SBI), the country's largest lender, was the first to voluntarily link some of its lending rates to RBI's repo rate in May 2019. Other lenders, especially state-owned, are now following the big brother but with a lag.
Punjab National Bank's Managing Director and Chief Executive Officer Sunil Mehta said that within a week's time, the lender will come up with a set of loan products to be benchmarked to the policy rate. Last week, lenders including Union Bank of India, Bank of Baroda and Canara Bank announced that they will link some lending rates to RBI's repo rate.Meanwhile, SBI Chairman Rajnish Kumar said that the bank will link more loan products with repo rate for new customers depending upon their liability behaviour.The Great Diwali Discount!
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