Bank of Maharashtra cut its marginal cost of funds-based lending rate (MCLR) by 20-35 basis points (bps) across tenors effective July 11, bucking the trend of lenders raising rates after India’s central bank increased the benchmark policy rate by 90 basis points.
The state-owned lender cut overnight and one-month MCLR by 25 bps to 6.90 per cent and 7 per cent. The three-month MCLR was cut by 35 bps to 7.20 per cent. Six-month and one-year MCLR were cut by 20 bps to 7.40 per cent and 7.50 per cent, according to the bank’s notification to the stock exchanges.
Lending rates have been going up since May after the Reserve Bank of India’s six-member monetary policy committee (MPC) raised the repo rate by 40 bps to 4.40 per cent, almost after three years. The following month the rate setting body increased the rate by 50 bps more, taking the repo rate to 4.90 per cent, to tame the headline inflation, which was above the Reserve Bank’s tolerance limit for quite some time.
Economists expect more rate hikes from the MPC, given inflation is still considerably high. RBI has projected at 6.7 per cent in 2022-23, with Q1 at 7.5 per cent; Q2 at 7.4 per cent; Q3 at 6.2 per cent; and Q4 at 5.8 per cent.
While the external benchmark linked loan interest rates have gone up by 90 bps for all banks, the MCLR linked loans rates have been raised disproportionately by lenders depending on their cost of funds.
After the MPC’s rate hike in June, HDFC Bank last week raised its MCLR by 20 bps. HDFC Bank, India’s largest private sector lender, last raised its MCLR by 35 basis points in June, a day before the MPC meeting. It had also hiked its MCLR by 25 bps in May. Since May, State Bank of India (SBI) has hiked its MCLR by 30 bps. And, since April, it has hiked MCLR by 40 bps. It raised MCLR by 20 bps last month after MPC’s decision to hike repo rate by 50 bps.
A S Rajeev, managing director and chief executive officer at Bank of Maharashtra, told ‘Business Standard’ the MCLR revision is a course correction as the bank’s rate across maturities were higher by over 20 bps than competitors. There could be further calibration of rates in the future, he said.
Another bank executive said that bond yields like 10-year government of India benchmark bonds in the market have been established and are likely to stay that way in the near term, offering the bank room for course correction.
With this rate revision, it is going to help the bank to compete for corporate loans which are still linked to MCLR. This will not impact the Net interest Income, official said.
According to the latest Reserve Bank data, as of March 2022, about 43.6 per cent of loans of scheduled commercial banks is linked to the MCLR.
The Pune-based lender’s cost of funds had declined from 4.17 per cent in FY21 to 3.70 per cent in FY22 and yield on advances moderated from 7.48 per cent in FY21 to 7.29 per cent for FY22. The share of low-cost deposits- current account and saving account – has moved up to 58 per cent at end of March 2022 from 54 per cent a year ago.
ICICI Bank, Punjab National Bank, and Indian Bank raised their MCLR last week, after the MPC’s decision.