India’s banks sharply cut lending rates after low-cost deposits
MUMBAI: Several banks, including top lender State Bank of India, announced sharp cuts in lending rates after a surge in deposits following a government ban on high-value bank notes.
SBI, the country’s biggest lender by assets, said on Sunday it had cut its socalled marginal cost of funding-based lending rates (MCLR) by 90 basis points for maturities ranging from overnight to three-year tenures.
Still, lenders also took steps to protect their margins. SBI, for example, raised the premium it charges on home loans to 65 basis points above the reduced one-year MCLR of 8 per cent, according to details released on Monday. The lender did not specify why it raised the premium.
Banks have received an estimated Rs14.9 trillion ($219.30 billion) in old Rs500, and Rs1,000 notes from depositors since the government on November 8 unexpectedly banned the banknotes in a bid to fight counterfeiting and bring unaccounted cash to the economy.
That had raised expectations banks would have room to cut lending rates, which is seen as vital to increase credit growth and spark a revival in private investments. Although India’s gross domestic product grew 7.3 per cent in the July-September quarter from a year earlier, the fastest pace of growth among large economies, much of that has been led by consumer demand.
Lower lending rates will be welcome by the Reserve Bank of India, which has cut the policy rate by 175 bps since the start of 2015 but has felt banks were being too slow in cutting their lending rates. SBI’s move comes after Prime Minister Narendra Modi on Saturday admonished banks to “keep the poor, the lower middle class, and the middle class at the focus of their activities,” and to act with the “public interest” in mind.