Lending rates seen downhill on liquidity slosh

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With corporate bond market rates falling, banks have begun to pull the trigger on their lending rates to prevent the flight of corporate customers from the credit to the bond market.

Axis Bank, third-largest private sector bank, became the latest to revise its MCLR (marginal cost of funds based lending regime) by 0.05% across all tenures.

So the one-year MCLR of the bank to which most of the loans are linked has come to 9.25% and the home loans rates would be 0.25% higher than the base rate.

However, the country’s largest lender State Bank of India (SBI) and the largest private sector lender ICICI Bank continues to be offering the lowest rate with its one-year MCLR at 9.10% with effect from August 1, 2016. The home loan rate of SBI, however, continues to be lowest in the market with a 0.20% to 0.25% mark-up over the base rate. The SBI home loan rates are at 9.30% for women customers and 9.35% for general customers.

For ICICI Bank and HDFC, the home rates range from 9.40% for women to 9.45% for the general category with a mark-up of 0.40% to 0.45% over the one-year MCLR.

Jairam Sridharan, group executive & chief financial officer at Axis Bank, told dna, “The comfortable level of liquidity is enabling us to pass on the softer rates to the customers. The MCLR regime has made it possible for faster transmission of rates, this being the third rate cut from April when the MCLR has come down by 0.30% across various tenures. In home loan rates we will stay competitive.”

With the Reserve Bank of India (RBI) infusing about Rs 80,000 crore of liquidity into the market promising more, the debt market rates are falling. RBI governor Raghuram Rajan said at his last monetary policy review that the central bank has covered about 40% of the liquidity shortage in the market, signalling a deluge liquidity induction the market. Higher bank lending rates by 1-2% in most cases have forced many companies to migrate to the commercial paper or the corporate bond market, rather than access the bank credit.

However, Sridharan said, “It is not the rush by companies to the CP market that is bringing down rates. Higher liquidity levels are helping us to reduce our cost of funds and bring down the lending rates.”

Rajnish Kumar, managing director in charge of retail assets, SBI, said, “SBI reduced its MCLR on August 1, but we have kept the home loan rates steady at 9.30% for women customers and 9.35% for general customers.