Banks Start Lowering MCLR A Month After RBI's Repo Rate Cut
While the RBI has cut repo rate, it is yet to completely reflect in a cut in deposit rates, which typically happens with a lag of a few months.
A month after the Reserve Bank of India announced its second repo rate cut of 25 basis points to 6%, some banks have started cutting their marginal cost of fund-based lending rates.
The MCLR is a rate that is set by the banks based on the various costs that needs to be factored in while lending, such as cost of incremental funds, operating costs, loan loss provisions and profit margins.
Among lenders, Canara Bank has cut its MCLR across tenures by 10 bps. The state-owned bank's revised MCLR will be in the range of 8.2–9.2%, with effect from Monday.
Last week, Tamilnad Mercantile Bank Ltd. cut its one-year MCLR by 10 bps to 9.5%. On April 30, Punjab National Bank had decreased its MCLR by 10–15 bps across tenures, ranging from 8.25–9.25% and Indian Bank lowered MCLR by 5 bps on overnight and one-month tenure to 8.25% and 8.5%, respectively.
Bank of Baroda cut its MCLR last week on one-year loans by 5 bps to 8.95%, which came into force on Monday.
While the RBI has cut repo rate, it is yet to completely reflect in a cut in deposit rates, which typically happens with a lag of a few months. Therefore, MCLR cuts happen with a lag of three to six months from the repo rate cut.
While all floating rate loans from banks to retail customers are required to be linked to an external benchmark lending rate, MCLR changes are unlikely to impact the retail segment, though a cut in repo rate will benefit retail borrowers.
"Transmission of rates will largely happen in the second half of the current financial year but everything depends on liquidity, which, as of now, it is expected that RBI will keep it in positive territory even in a modest amount," Soumyajit Niyogi, director at India Ratings and Research, said.
Since banks have already started cutting savings rates, high ticket term deposits and fixed deposit rates, it should ideally percolate into reduction in MCLR, Niyogi said.
"While liquidity management is important for monetary policy including decisions related to policy rate, it is an operating tool with the RBI for various purposes including monetary policy transmission," RBI Governor Sanjay Malhotra had said during its second monetary policy announcement.
RBI's Monetary Policy Committee had changed its stance from accommodative to neutral last month, entailing easy monetary policy that is geared towards stimulating the economy through softer interest rates.
