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Banks take cue from SBI, ICICI cuts rate 70 bps

The big home loan players HDFC Ltd and LIC Housing Finance will be forced to match the rates offered by SBI

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State Bank of India chairman Arundhati Bhattacharya during a press meet at SBI headquarters in Mumbai on Monday
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Lenders continued to slash interest rates to spur growth in bank credit that has seen an unprecedented deceleration.

On Monday, ICICI Bank reduced its MCLR by 0.70%. The one-year MCLR to which most of the new loans are pegged is 8.2%.

ICICI Bank also reduced its home loan rates as it tried to catch up with the rates offered by SBI, with a reduction of 0.45% to 0.65%. For new home women borrowers, the interest rate on home loan up to Rs 75 lakh has been reduced by 0.45% to 8.65%. For men borrowers, the same has been reduced by 0.45% to 8.70%. For loans above Rs 5 crore, the interest rate has been reduced by 0.60% to 8.85%

The banks have made sharp reductions in the marginal cost-based lending rate (MCLR). However, most of them barring State Bank of India have not cut the base rate, the lending rate to which the bulk of the loans are linked. While SBI cut its base rate by 0.05%,other lenders were silent on the base rate.

Arundhati Bhattacharya, chairman of SBI, said, “We think that the new rates will kick-start demand in the market. We are exploring every opportunity to revive the bank credit rather than investing into government bonds where we earn around 6%. For the year, we expect to clock a bank credit growth of 8%."

The big home loan players HDFC Ltd and LIC Housing Finance will be forced to match the rates offered by SBI.

On Sunday, SBI reduced its home loan rates by 0.60-0.55%, depending on the quantum of the loan. It has also taken off the differential pricing for women and general customers.

All home loans up to Rs 30 lakh will have a fixed rate of 8.5% for the first two years after which it will be linked to the marginal cost based lending rate (MCLR). But the spread over the MCLR will remain constant at 0.50%. For loans up to Rs 50 lakh, the rate will be 8.60% and loans above Rs5 0 lakh up to 1 crore the rate will be 8.70%processing fee is also competitive and one of the lowest in the industry. The minimum processing fee would be Rs 2000 and maximum would be Rs 10,000

While SBI cut its MCLR by 0.90% on Sunday, home loans are down only by 50-60 basis points. And the spread over the MCLR is now higher at 0.60% against 0.20% earlier. So, home loans up to Rs 75 lakh, earlier available at 9.1%, can now be taken at 8.70%. For others, the rate would be 8.65%, against 9.15% earlier.

The bank has also introduced two new products called the SBI bridge loan for customers who own a home but want to upgrade to a better home. This will be a two-year loan with the rate of interest at 10.45% for the first year and 11.45% for the second year. The other product is a top up loan called the SBI Insta Home top up loan which will be a top up for the existing customer of the bank. The interest rate on these loans will be 1% higher than the prevailing MCLR for the bank which will make it 9% in the present rate regime. The top up loan will be a maximum of Rs 5 lakh only.

MCLR was introduced last year for faster transmission of monetary policy rates and to ensure uniformity and transparency in calculation methodology for lending rates. While MCLR-based lending only applies to loans taken after April 2016, all the previous advances are benchmarked against the base rate. Banks have been announcing sharp cuts to their MCLR rates in the wake of Prime Minister Narendra Modi's address to the nation on New Year's Eve.

Dena Bank also reduced its rate by 0.75%, which will bring down its one-year MCLR to 8.55%.

Kotak Mahindra Bank announced a cut of up to 0.45 % in its MCLR.

On Monday, Bandhan Bank also cut its MCLR by 1.48 % to 10.52 %.

"We will continue to pass on the benefit of lower cost of funds to our borrowers," Chandra Shekhar Ghosh, managing director and chief executive officer, Bandhan Bank, told media. "Our deposit portfolio has risen to Rs 19,000 crore and 27 % of this is current and savings accounts (CASA)."

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