State Bank of India cuts lending rates, retail loans to get cheaper

The State Bank of India (SBI) on Wednesday announced lowering its marginal cost of funds based lending rate (MCLR) by 10 basis points across all tenors to 8.05 per cent from today (Oct.10). The MCLR cut will make home and other retail loans cheaper for the existing borrowers.

The bank’s one-year MCLR has been brought down from 8.15 per cent per annum to 8.05 per cent per annum. This is the sixth cut in MCLR in FY 2019-20 and it comes days after the Reserve Bank of India (RBI) lowered the repo rate by 25 basis points.

“In view of the festival season and to extend the benefit to customers across all segments, the SBI has reduced its MCLR by 10 bps across all tenors,” the country’s largest state lender said in a statement.

MCLR refers to the minimum interest rate of a bank below which it cannot lend, except in some cases allowed by the RBI. MCLR rates are based on a bank’s own cost of funds. So if an existing home loan is linked to the SBI’s MCLR rate, the latest cut may not bring down its EMIs immediately. MCLR-based loans generally have a one-year reset clause.

To new borrowers, the SBI now also offers a repo-rate linked home loan scheme. Under this scheme, the loan rate gets adjusted as and when the RBI revises its benchmark rate.

The SBI charges a spread of 265 basis points over the RBI’s repo rate (currently at 5.15 per cent) to calculate its external benchmark-based lending rate. The bank also charges a premium for effective home loan rate to keep its margins intact.

The State Bank of India (SBI) on Wednesday cut interest rate on savings deposits, with a balance of upto Rs 1 lakh, by 25 bps to 3.25 per cent from November 1, and slashed retail & bulk term deposit interest rates by 10 and 30 bps respectively for 1 year to less than 2-year tenor from October 10.

“In view of the adequate liquidity in the system, the State Bank of India announces revision in interest rate on Savings Bank Deposits (with a balance upto Rs 1 lakh) from 3.50 per cent to 3.25 per cent w.e.f. 1st November 2019. Bank also slashes its Retail TD and Bulk TD interest rates by 10 bps and 30 bps respectively for 1 year to less than 2 years’ tenor w.e.f. 10th October, 2019,” the SBI said in a statement.

SBI shares were trading at Rs 254.95, up Rs 5.85 (2.35%) recovering more than 4 per cent from lows.

Earlier, the bank lowered its Marginal Cost of Funds based Lending Rate or MCLR by 10 basis points across all tenors to 8.05 per cent from October 10, a move that is likely to make home and other retail loans cheaper for the existing borrowers.

This is the sixth cut in MCLR in FY 2019-20 and it comes days after the Reserve Bank of India (RBI) lowered the repo rate by 25 basis points.

The State Bank of India and Bank of Baroda may report healthy pre-provision operating profit, but elevated credit costs and higher mark-down on DTA or Deferred Tax Assets could impact their earnings if they decide to move to the new tax regime in Q2.

It will be a Soft and volatile quarter for banks, the brokerage said adding: “We expect banks to report reasonable PPoP (Pre-provision operating profit) growth (23 per cent yoy for Pvt Banks/17 per cent yoy for PSBs), driven by nearly stable margins and healthy treasury gains. However, LLP (Loan Loss Provision) is likely to remain elevated due to higher NPAs/write-offs and banks’ strategy to improve PCR (provision Coverage Ratio).

“Banks are divided on migrating to the new tax regime in Q2 as they are assessing the impact of the withdrawal of tax deductions/exemptions, mark-down of DTA (deferred tax assets).The brokerage said main private sector banks may shift to the new tax regime.

“We believe that some frontline private banks, such as ICICI, Axis, HDFCB and IIB, may move to the new tax regime, but in the process they will have to mark down the DTA, impacting their earnings. Thus, among private banks, we expect HDFCB, ICICI, Kotak, Federal Bank, CUB, Bandhan and SFBs (Equitas, Ujjivan, AU SFB) to report healthy performance at the operating level, but some may see volatility at the net earnings level due to the DTA impact.

“Among PSBs, we expect BOB and SBI to report healthy PPoP, but elevated credit costs and higher mark-down on DTA could impact their earnings if they decide to move to the new tax regime in Q2.

“The report added headline NPA ratios may moderate a bit but concerns remain around lumpy fresh corporate stress and continued slow pace of resolutions,” Emkay said

Indo-Asian News Service