Axis Bank Rate Cut Un­likely to Im­pact Mar­gins: Sharma

The Economic Times - - Smart -

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.


Has the mon­soon forecast come as a big re­lief? It’s very good, looks like both the IMD and MET have forecast above nor­mal mon­soon. So, I think it is def­i­nitely good for the econ­omy, good for agri­cul­ture and good for con­sumer sen­ti­ment.

Do you be­lieve good mon­soon will be a pos­i­tive driver for ru­ral growth? I think it’s an im­por­tant el­e­ment in ru­ral growth cou­pled with a lot of ini­tia­tives that the gov­ern­ment had an­nounced in the Bud­get. I think it is a def­i­nite pos­i­tive for the ru­ral econ­omy.

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