The Finance Minister, Nirmala Sitharaman, has been trying to bring about a lot of variations in policies to rise the economic crisis of the country. As an indirect result, State Bank of India has cut the marginal cost of funds-based lending rate (MCLR) yet again. The falling lending rates has brought in cheer to borrowers.
The rate slash was announced for the fifth time in a row in the financial year 2019-20. MCLR has been reduced by 10 basis points (bps) across all tenors, dropping the 1-year MCLR to 8.15% per year.
Further, SBI has reduced interest rates on retail term deposits and bulk term deposits by 20-25 bps and 10-20 bps respectively across tenors. The bank states that the rate cuts are made in view of the falling interest rate and surplus liquidity. The latest interest rates are effective from 10 September 2019.
The Reserve Bank of India (RBI) has been unhappy about banks’ pace of transmission on rate cuts under the regime of base rates and MCLR. The rates are set based on internally decided benchmarks; transparency with the public has also been an issue here.
Currently, the repo-linked lending rate is 2.25%. If this can be raised to 5.40%, the new home loan rates can be brought down to as low as 7.65% plus spread with external benchmarking depending on the risk profile of borrowers.