SBI to lower MCLR by 5 bps from 1 August

Mumbai: State Bank of India (SBI) on Friday said that it will reduce its marginal cost lending rate (MCLR)—the benchmark lending rate at which banks lend to new borrowers—by 5 basis points (bps) across maturities, effective 1 August.

A basis point is one-hundredth of a percentage point, or 0.01%.In a statement on its website, India’s largest lender said that, starting Monday, it will be reducing its one-year MCLR to 9.1%, from the current rate of 9.15%. Similarly, overnight MCLR will be reduced to 8.9%, while two-year MCLR will be lowered to 9.2%.

The rate cut comes on the heels of a drop in benchmark government bond yield, which closed at 7.19% on Thursday, its lowest level since 30 May 2013. A drop in the benchmark bond yield means that the overall borrowing cost for banks has also been dropping. On Wednesday, Axis Bank announced a similar 5 bps cut in MCLR across maturities, lowering its one-year borrowing rate to 9.3%, with effect from 18 July.

The Reserve Bank of India introduced MCLR on 17 December, and the guidelines mandated that banks must price incremental loans using MCLR, starting 1 April.

Under MCLR, banks need to consider their marginal cost of funds, or the cost incurred on incremental deposits across different maturities. To this, banks will add their operating costs, the negative carry-over of their cash reserve ratio balances with the central bank and a tenure premium.

Banks are required to publish MCLRs for at least five tenures of loans, which include overnight, three months, six months and one year. The final loan rate for a borrower is arrived at by adding the credit risk premium to the MCLR.

MCLR is expected to improve transmission of policy rate cuts to bank loan rates.

State Bank of India