It`s time that banks relax lending rates for loan borrowers

Zee Media Bureau

Banks' obduracy in not complying with the Reserve Bank of India's word seeking a benign transmission policy has continued for long.

The Reserve Bank reduced the short-term lending rate (repo rate) by 0.25 percent to 6-year low of 6.25 percent in the fourth bi-monthly monetary policy review on October 4, again, pinning hopes banks will pass on the rate cut to consumers boosted by easy liquidity conditions set off by its operations.

“Furthermore, banks should find added impetus for better transmission by the recent downward adjustment in small savings rates,” said the resolution by the six-member Monetary Policy Committee headed by RBI Governor Urjit Patel.

RBI has reduced key interest rate (repo rate) by 175 basis points since January 2015. However, the banks have been reluctant to pass on the entire benefits to consumers. The government had last week reduced the interest rates on small savings schemes by 0.1 percent for the October-December quarter of the 2016-17 fiscal. The schemes include Public Provident Fund, Kisan Vikas Patra, and Sukanya Samriddhi Account. All the more reason to follow a consumer friendly transmission policy. 

RBI had even constituted a committee under former deputy governor Anand Sinha, and had recommended that banks should have a policy on spreads, approved by the board of directors.

Though some banks like Bank of India, Punjab National Bank, Syndicate Bank, Bank of Maharashtra and ICICI Bank announced their new marginal cost of funds based (MCLR) lending rates today, a day after RBI cut repo rate by 0.25 percent.

Bank of India said it has fixed marginal cost of funds based lending rate (MCLR) at 9-9.35 percent with effect from October 7.

For overnight tenor, the rate will be 9 percent, 9.2 percent for three months, 9.25 percent for six months and 9.35 percent for one year, it said in a regulatory filing.
Syndicate Bank's MCLR will be in range of 9.3 - 9.45 percent with effect from October 7, while that of Bank of Maharashtra will be between 9.05-9.6 percent from October 1.

Delhi-based Punjab & Sind Bank said its lending rates will be in the range of 9.3-9.75 percent from October 5.

More banks need to follow suit as it is expected that the benign policy of the RBI is expected in the near term, and with good monsoon recorded this year, may slip over to the next fiscal.

In a note, domestic rating agency Icra said it expects the rate easing cycle to continue. "With the indication that real interest rates (the differential between the key lending rate and inflation) may need to be lower than 1.50 percent given prevailing global scenario of negative rates, further easing by the Monetary Policy Committee (MPC) can't be ruled out," its senior vice president Karthik Srinivasan said, adding that he is uncertain over the timing.

With agencies input