Axis Bank Rate Cut Unlikely to Impact Margins: Sharma
Axis Bank, India’s third largest private sector lender, reduced its lending rate based on marginal cost of funds (MCLR) by 15 basis points across all tenors. The new rates will be effective from April 18. The bank’s overnight loans will be priced at 8.95%. The MCLR on 6-month loans will be 9.3%, while for one-year loans, the rate would be 9.35%. In an interview to Saloni Shukla, Axis Bank CEO Shikha Sharma said that the new rates are unlikely to impact the bank’s margins. Edited excerpts:
Will the new rates under MCLR impact your margins? MCLR is margin-neutral because it is based on a calculation of marginal cost of funds and it applies to marginal lending. Base rate applies to the book and it is computed on our average cost of funds. As long as we manage incremen- tal asset liability mismatch appropriately, this will be margin neutral.
Are you seeing quicker transmission under MCLR? MCLR is based on marginal cost of funds, and has faster transmission than base rate which is based on average, and that’s what’s happening in our cuts as well. Base rate was cut by 5 basis points, but MCLR is being cut by 15 basis points — so you are seeing faster transmission on MCLR. But, fundamentally the formula comes from cost of funds as liquidity in the system improves. Short-term rates will fall, and that’s how MCLR will come down. We will be resetting our MCLR on the 18th of every month. How will the spread on home loans look like? Our home loans are going to be priced on the 6-month MCLR, and I think some of the other banks may have a one-year reset. On margin over MCLR, it’s obviously dependent on our risk profiling of the customer. And it could be anywhere between 10 and 50 basis points.
SHIKHA SHARMA CEO, Axis Bank
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