SBI Cuts Base Rate By 30 Basis Points; Says MCLR Review Unlikely In Near-Term

The State Bank of India reduced its base rate, bringing relief to customers not under the marginal cost of funds lending rates. The country's largest lender had last reduced its base rate by five basis points in September.

The state-run bank reduced the rate by 30 basis points to 8.65 percent. The new base rate will be effective immediately.

Explaining the rationale behind the state-owned lender's decision, PK Gupta, managing director of the bank said that the gap between the base rate and MCLR had widened over time and it was necessary to bring it down. The move will benefit the customers who had not exercised the option of moving to MCLR, he added.

While banks migrated to the MCLR system in April 2016, a substantial proportion of loans, particularly retail loans, remains linked to the previous base rate system. As such, a reduction in base rates tends to impact those customers. As in the case of SBI, less than 25 percent of its customers have been impacted by the base rate cut, said Gupta.

MCLR rates, on the other hand, have been left unchanged with the one-year rate at 7.95 percent and overnight rate at 7.70 percent, according to the lender's website. Given the current liquidity position, Gupta does not anticipate a revision in the MCLR anytime soon. Besides, CASA ratio and deposit rates – the two most important determinants of MCLR – have remained stable. However, if liquidity tightens further, the lender will have to review the rates, he added.

SBI's shares rose close to 1 percent to Rs 312 apiece after the announcement on the National Stock Exchange.