ICICI Bank, others take SBI cue, slash MCLRs

Private sector lenders ICICI Bank and Kotak Mahindra Bank and state-owned lenders Central Bank of India and Dena Bank on Monday reduced the marginal cost of funds-based lending rates (MCLRs) with effect from January 1.

While ICICI Bank’s one-year MCLR now stands 70 basis points (bps) lower at 8.2%, the corresponding figure for Central Bank came down 85 basis points (bps) to 8.5%. Dena Bank lowered the MCLR by 75 bps to 8.55% and Kotak Mahindra Bank cut the MCLR by 20 bps to 9%.

So far in January, State Bank of India, Punjab National Bank, Union Bank of India, IDBI Bank and State Bank of Travancore have cut their MCLRs. The cuts came in reaction to a demonetisation-induced deluge of deposits and a resultant drop in their marginal cost of funds.

As per the MCLR regime, which replaced the base rate regime in April 2016, banks review their benchmark lending rates every month on the basis of their incremental cost of funds.

According to the Reserve Bank of India (RBI), banks had garnered deposits worth Rs 12.44 lakh crore between November 10, the first working day for bank branches after the decision to withdraw high-value currency notes was announced, and December 10. The central bank has not released any data on deposits entering the banking system subsequently.

With the phenomenal jump in deposits, the country’s leading banks have cut rates on one-year retail fixed deposits by between 15 bps and 90 bps. SBI now offers 6.9% on one-year deposits of less than Rs 1 crore, as against 7.05% before November 8.

The recent series of rate cuts also implies a quicker transmission of the rate easing cycle the RBI set in motion in January 2015, bringing down the repo rate by 175 bps to 6.25%.

SBI’s recent move to bring down its one-year MCLR to 8% marks a 200-bps drop from its January 2015 base rate of 10%.

There is lack of clarity on what the central bank’s future rate actions might be, with members of the rate-determining monetary policy committee voicing concerns over a likely short-term slowdown in economic growth and achieving a 4% (+/-2%) rate of inflation on a durable basis in the minutes of its latest meeting.

ICICI Bank

State Bank of India