Banks will now have to adhere to a new way of calculating their lending rates beginning April. The Reserve Bank of India on Tuesday said that even smaller fixed-rate loans should be linked to the MCLR (marginal cost of lending rate) or the base rate. This new regime, however, won't affect the margins of State Bank of India, says its MD Rajnish Kumar, adding they (margins) would be protected through efficient asset liability management.Also the MCLR is based on the marginal cost of deposits and there is a formula for that, says Kumar. When asked if the bank would cut deposit rates going forward, he said their deposit rates were already low but any further decision would be taken by the Asset/Liability Committee (ALCO).He expects the Reserve Bank of India to cut rates in April.
Below is the verbatim transcript of Rajnish Kumar's interview with Latha Venkatesh on CNBC-TV18.
Q: Yesterday the Reserve Bank of India (RBI) said even smaller fixed rate loans should be linked the new base rate or the MCLR. Will that be incrementally negative?
A: No, no question of incrementally being negative because even then you are arriving at a fixed rate. You still need some benchmark to price it and that is tentative. However, if you want to give a fixed rate, you will have to keep MCLR into consideration, for example if you want to give one year loan at a fixed rate, you still need to have MCLR into consideration.
Q: Net-net now that we know how the marginal lending rate has to be calculated, come April since many banks have cut deposit rates, for the system as a whole, should we expect rate cuts?
A: System is expecting rate cut from RBI.
Q: Separately, a lot of banks lately, I saw HDFC Bank deposit cut, Oriental Bank of Commerce deposit cut. So should we expect therefore that you have to pass it on?
A: If they have cut the rate, so I presume they have done their calculations about how ended, at what rate MCLR will be. So maybe like the deposit rates were too high and then MCLR -- these are all presumptions because we do not have any numbers for any bank but they might have been uncompetitive in the market, so that could be the reason for cutting. Our deposit rates are already quite low.
Q: So you are not cutting anything in April?
A: That will be decided in the Asset Liability Committee (ALCO). I am not making any presumptive statement on this. ALCO will be taking a call but this is a new regime and it is panning out.
Q: New regime will be margin reducing for you because we are in a falling interest rate scene?
A: I do not think through asset liability management margins can be protected. However, marginal cost of lending rate is determined on marginal cost of deposits. There is a formula for that and if MCLR has to come down before that the deposit rate also has to come down or vice versa.
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