SBI, ICICI Bank cut home loan rates

Private sector lender ICICI Bank announced a cut of 0.10% in its marginal cost of funds based lending rate (MCLR) across tenors. This was followed by a similar move by the country’s largest lender, State Bank of India (SBI), with a larger cut of 0.15%.

Under the revised rates, the one-year MCLR, which determines a slew of products including home loans, stands at 8.90% for SBI, while the same for ICICI Bank is 8.95%. The revised rates are effective from November 1, 2016 in case of both the banks.

SBI has kept the overnight MCLR, which is the most aggressive offering, at 8.65%, while the one-month MCLR is at 8.75%. For ICICI Bank, the overnight and one-month MCLR will be 8.75%.

The announcements come after repeated displeasure shown by the regulator, for not passing on the benefits of cuts to borrowers.

They also come ahead of the crucial ‘busy season’ in the second half of the fiscal, which sees a spurt in loan demand.

The MCLR was introduced from April 2016, as a transparent and effective alternative by the RBI, after banks refused to pass on the benefits of its rate cuts to the borrowers. Even after the introduction of the MCLR, the central bank continues to be concerned on the issue of transmission, which was flagged by governor Urjit Patel, at his maiden policy review in October 2016.

“I agree that the transmission through bank lending, has been less than anyone of us would have liked. We are hoping that over the next quarter or two, keeping in mind that the government has also reduced the small savings rates, the MCLR itself will now throw up more transmission,” Patel said.

Banks are given a set formula to compute the MCLR based on cost of funds and are required to review it on a monthly basis, when the calls on the new rate structures are taken. Since January 2015, the Reserve Bank has reduced repo rate by 175 basis points, including the recent cut, but banks have reduced their base rates by only by 60 basis points.