Short-term loans to become cheaper with new lending rate formula

Zee Media Bureau

New Delhi: In the latest, short-term loans are bound to get cheaper as banks shift to new lending rated which are effective from Friday. As per the new formula for interest rate calculation, the lenders will fix interest rates on the basis of a calculation called marginal cost of lending rate (MCRL).To put it clearly, banks have to routinely calculate their cost of funds and any change has to be passed on to borrowers by revising their benchmark.

This automatically leads to interest rates on short term loans falling below the base rate of the bank.

Based on he quality of borrower a credit risk premium will also be added in fixing final interest rates.

State Bank of India, country's largest lender, has cut its home loan rate to 9.4 percent with effect from April 1 from 9.5 percent.

Even ICIC Bank has come up with MCLR of 9 percent, but there is no announcement of mark-up at which it will lend home loans.