SBI cuts MCLR for ninth time in a row, home loans to become cheaper; cuts interest rate on fixed deposits too

A day after the Reserve Bank of India (RBI) announced incentives for banks to boost credit growth in the form of relaxing cash reserve ratio (CRR) norms, the country's largest lender State Bank of India (SBI) on Friday announced a 5 basis points reduction in its MCLR across tenors, effective 10 February.This is the ninth consecutive cut in MCLR by the bank in the current fiscal. The MCLR cut will make home and auto loans cheaper.With this reduction, the one-year marginal cost of fund-based rate (MCLR) has come down to 7.85 percent per annum from 7.90 percent, a bank statement said.The reduction in MCLR by the bank comes a day after the Reserve Bank of India (RBI) left the repo rates unchanged at 5.15 percent but announced long-term repo operation for up to Rs 1 lakh crore, making cost of funds cheaper for banks.[caption id="attachment_5204511" align="alignleft" width="380"]

Representational image. Reuters[/caption]SBI further said in view of surplus liquidity in the system, it has realigned its interest rate on retail term deposits (less than Rs 2 crore) and bulk term deposits (Rs 2 crore and above), effective 10 February.It slashed term deposits rates by 10-50 bps in the retail segment and 25-50 bps in the bulk segment."The impact of recent RBI policy measures and reduction in deposit rates will be reflected in the next review of MCLR," the bank said.On Thursday, the RBI scrapped the mandatory requirement for banks to set aside cash of 4 percent for every new loan extended to retail automobiles, residential housing, and small businesses till July 2020 in order to boost credit growth.There is a need for "adjustment" in interest rates on small saving schemes, the Monetary Policy Committee (MPC) said, adding that the external benchmark system adopted from 1 October, has strengthened monetary policy transmission.The government is likely to revise small savings rates downward in the coming quarter beginning in April.With the RBI tweaked the CRR norms, it will be a major relief for the ailing real estate and auto sectors.In a major relief to the real estate sector, the RBI extended the restructuring of project loans by a year. Loans for projects that have been delayed for reasons beyond the control of their promoters have been extended by another one year without downgrading the asset classification. This aligns with the treatment accorded to other project loans for the non-infrastructure sector.The move will bring much-needed relief to the cash-starved real estate sector.As against the reduction of 135 bps, transmission to various money and corporate debt market segments up to 31 January, 2020 ranges from 146 bps to 190 bps, while banks' lending has been a far cry of this at around 40 bps reduction.The weighted average lending rate on fresh rupee loans sanctioned by banks declined by 69 bps and the same on outstanding rupee loans by 13 bps during February-December 2019, the RBI said.— With PTI inputs