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Showing posts with label MCLR. Show all posts
Showing posts with label MCLR. Show all posts

Monday, 24 October 2016

08:39

Three PSU banks cut MCLR

Three PSU banks cut MCLR

NK Bank, Chennai, Oct 5 : Three public sector banks -- Indian Overseas Bank (IOB), Bank of India and Syndicate Bank -- on Wednesday announced reduction in their marginal cost of funds-based lending rate (MCLR) for various tenors.

City-based IOB, in a statement issued here, said its MCLR for one year is reduced to 9.50 per cent from 9.55 per cent with effect from October 1.

Similarly, Syndicate Bank said it has cut its MCLR for one year to 9.45 per cent from 9.55 per cent effective from October 7.

On its part, Bank of India said its one year MCLR will be 9.35 per cent effective from October 7.

Source:NewKerala
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Thursday, 5 May 2016

08:24

Yes Bank cuts MCLR by 10 bps

Yes Bank cuts MCLR by 10 bps

Mid-sized private sector lender Yes Bank today cut its marginal cost of funds based lending rate (MCLR) by 0.10 per cent across tenors, reacting to similar moves by competition.

The city-headquartered lender's one year MCLR will now be 9.5 per cent as against the earlier 9.6 per cent, it said in a statement.

The rate cut across tenors has been 0.10 per cent, it added.

Its overnight rates -- generally the lowest -- were not immediately available.

The move comes a day after the country's largest lender SBI cut its MCLR by 0.05 per cent, under which its lowest offering came down to 9.15 per cent.

Other lenders, including Yes Bank's private sector rivals, have been regularly revising rates in order to keep up with competition since the introduction of the new system last month.

Yes Bank had last week guided toward an expansion of up to 0.20 per cent in margins during the fiscal despite the introduction of MCLR.

 Source:Banking Updates


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Sunday, 3 April 2016

20:33

With inflation easing, will RBI cut interest rate by 0.50 percent?

With inflation easing, will RBI cut interest rate by 0.50 percent?

Citing various factors for easing the monetary stance, industry chambers are pitching for 0.5 per cent cut in the key interest rate.

With inflation under check and government sticking to its fiscal consolidation path, market expectations are that RBI may cut interest rate by up to 0.50 percent in its first bi-monthly monetary policy review for 2016-17 on Tuesday in order to propel growth.

The government has also pared the small savings interest rate by up to 1.3 percent providing a cushion to the Reserve Bank for cutting the policy rate.

Finance Minister Arun Jaitley too had last week expressed the desire that the RBI should cut rate, stating “I want what everybody wants. At this stage if rate cuts do take place it’s certainly going to be helpful because you need a more efficient economy and you need a more competitive cost of capital”.

Bankers said that high interest rate could make Indian economy sluggish given that inflation is around 5 percent. “There is possibility of RBI reducing rate by 0.25 per cent as inflation has eased,” Bank of Maharashtra Chairman and Managing Director Sushil Muhnot told PTI. According to a senior official from a state-run bank, although a 25 basis points has been factored in by the market there is also a high possibility of RBI going for a 50 basis points rate cut. Citing various factors for easing of monetary stance, industry chambers are pitching for 0.5 per cent cut in the key interest rate. A 0.25 per cent cut in the policy rate by the RBI is almost given, but the real impact of falling lending cost can be felt only if the central bank goes in for a bold reduction of at least 0.50 percent, industry body Assocham said. Retail inflation as measured by the Consumer Price Index (CPI) eased to 5.18 percent in February as food prices rose at a slower pace, while Wholesale Price Index stayed in the negative territory for the 16th month in a row. Industrial output for the third month in a row remained in the negative territory contracting 1.5 percent in January due to poor showing of manufacturing sector raising industry clamour for rate cut by the RBI. RBI Governor Raghuram Rajan on March 12 said government’s sticking to fiscal consolidation roadmap of reducing deficit to 3.5 percent of the GDP in 2016-17 was comforting, a statement which raised hope for rate cut in April 5 monetary policy. Rajan, on February 2, had left the key interest rate unchanged citing inflation risks and growth concerns. As for the forthcoming policy review, Union Bank Chairman and Managing Director Arun Tiwari said: “I see a 25 basis points rate cut as inflation has come under the Reserve Bank’s target.” SBI Chairman Arundhati Bhattacharya has said, meanwhile, that RBI should outline steps to curb the volatility in systemic liquidity. “We expect RBI to address the issues of systemic liquidity,” Bhattacharya has said. Currently, high volatility in currency holdings of public (both in the form of cash and jewellery) as well as government’s cash balances with RBI is leading to volatility in systemic liquidity, she had said. According to Citigroup report, the RBI is expected to cut repo rate by 0.25 percentage point given that the budget stayed on the path of fiscal consolidation and progress has been made on the reforms front. The case for a rate cut becomes even stronger considering the benign CPI outlook and a strengthened transmission mechanism (quarterly reset in small savings rate, MCLR). 




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Friday, 1 April 2016

08:20

Commercial banks announce new lending rate structure

Commercial banks announce new lending rate structure

As a step to improve transmission of monetary policy, commercial banks announced marginal cost of funds-based lending rates (MCLR), a new regime which kicks in from April this year.

The overnight MCLR rate of seven large banks, including State Bank of India (SBI), ICICI Bank, HDFC Bank and Axis Bank, varied between 8.95 per cent (SBI) to 9.15 per cent (Punjab National Bank).
Bank of India did not provide MCLR rates. Its officials said the public sector lender will like to study rates quoted by competitors and finalise its rates today. Banks are not open for public transactions on the first day of the new financial year (FY17), starting today.
New home loans from SBI, the country’s largest lender, will be cheaper by 10 basis points (bps) under the revised loan pricing regime that begins from Friday.
Under MCLR regime, SBI’s benchmark rate would range between 8.95 per cent (overnight) to 9.35 per cent (for three years).

The Reserve Bank of India (RBI) had prescribed the new system for all banks, to improve transmission of monetary policy. Instead of one benchmark rate, banks would indicate at least five. Starting with one for overnight tenors, banks would quote rates for one month, three months, six months and one-year buckets. RBI has left it to banks for giving more rates for longer periods.

Anshula Kant, deputy managing director at SBI, said the MCLR rate for a one-year tenor will be 9.2 per cent. At present, their home loan rate is 9.55 per cent (base rate of 9.3 per cent plus 25 bps premium). Under the revised regime, it could be with MCLR for one year of 9.2 per cent plus 25 bps premium or 9.45 per cent for home loans sanctioned from Friday.

Existing home borrowers would get the option to move to the new rate. They will be charged a switch fee, to be announced soon. There would be a saving of ~600 in equated monthly instalment on a one-year loan, Kant said. This tenor (one year) will be most crucial for banks, as a little more than 30 per cent of deposits have a maturity of this much. The change in deposit rates for this bucket would drive revision in the MCLR rates.
Deposit rates are expected to slide further in FY17, depending on liquidity conditions. Asked about revision in these rates, Kant said they’d review these after RBI announces its policy review on April 5.

At present SBI’s term deposits range between 5.25 per cent at the short end to 7.5 per cent for 456 days to less than three years.
India Ratings and Research said the shortest tenor MCLR for bigger banks would be 90-100 bps lower than the base rate, making it comparable to commercial paper (CP) rates with similar tenor. On the longer end (one-year rate), considering the 70-75 bps of tenor premium in the market, the difference from the base rate could be 25-30 bps.
Implementation of MCLR has the potential to channelise the recent surge of volumes in the CP market towards bank credit. CP dues as a percentage of short-term bank credit went up to 14 per cent in FY16 (from 11 per cent last year) and three to five per cent of this, which is ~74,500 crore to ~1,20,000 crore, is likely to flow back into the banking system as rates get competitive.

Banks with a higher share of stable current and savings accounts will see less impact. Those with a relatively higher mix of domestic borrowing (in the form of longer tenor senior or subordinated debt) will be better positioned (in the current decreasing interest rate scenario). MCLR calculations would entail borrowing costs to be computed on an average basis.

Analysts said existing large corporate borrowers might be able to negotiate with banks to shift their loans to MCLR, putting downward pressure on margins. Aggressive refinancing of better rated companies by banks with lower MCLRs is likely and this could further dent the competitiveness of many mid-sized public sector banks.
The MCLR computation also factors in all operating costs, which will mean inefficient banks get penalised more. Additionally, MCLR provides flexibility for banks to re-price their floating rate book, compared to the base rate regime.
Bank yields and margins will be volatile in the new regime and a prudent asset-liability match will become more important in managing competitiveness through interest rate cycles, the rating agency added.

RBI recently said fixed rate loans up to three years would also be linked to MCLR. This could put further pressure on the net interest margin of banks, as it removes the possibility of using the fixed rate structure for working capital loans, which has been driving incremental corporate credit growth, it said.
Source:BankingUpdates
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Thursday, 24 March 2016

22:45

RBI rejects banks' demand to defer MCLR

RBI rejects banks' demand to defer MCLR

The Reserve Bank of India has rejected bankers' demand to defer the operationalisation of MCLR, or marginal cost of funds based lending, even as many lenders said that they are not ready to adopt the system. The new system will be operational from April 1 and many banks fear that their margins will be hit if the new method is implemented, while others said that the cost of lending could also go up.

In a closed-door meeting held recently between senior RBI and bank officials, the central bank told lenders that it doesn't want to extend the deadline since it was conveyed to them in December itself.

MCLR is a new method that banks will have adopt to declare the lending rates, and it will replace the base rate. The new rate has to be a tenor-linked rate with a reset clause at least once a year. For the customer, the MCLR that is prevailing on the day the loan is sanctioned, will be in application till the next reset even if the benchmark rate changes.
On the calculation of MCLR, the RBI has said that banks have to fac tor in the incremental cost of funds and not the average cost. Therefore, margins of banks with huge share of fixed rate loans and higher share of low cost deposits will not be hurt.

However, in case of a falling interest rate scenario, interest rates of new deposits would not come down as fast as the reset on the new loans.Thus, the banks' incremental cost may fall marginally in six months, but a large chunk of loans could be due for reset either on monthly or quarterly basis, thereby hurting banks margins -the difference between the cost of funds and yield on investments. The new method is introduced after the RBI felt that policy rate transmission was not effective under the base rate system -the rate at which banks lend to best-rated borrower. The RBI has lowered policy rates -which is the repo rate -by 125 basis points over the past 15 months. But banks have lowered interest rates by just about 60-70 basis points.

Bankers complained that they were unable to pass on the rate cut benefits to borrowers since rates on liabilities side-on deposits were at a fixed rate, while rates on the loan books were on a floating rate basis.
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Friday, 18 December 2015

23:18

RBI unveils new math for banks' base rate

RBI unveils new math for banks' base rate

Indian banks will soon have to price their loans based on rules announced by the central bank on Thursday in a move that is aimed at making lending rates more responsive to policy rate changes.

Starting 1 April, lenders will calculate their lending rates based on the marginal cost of funds, or the rate offered on new deposits. The new rules will likely to make loans cheaper for new borrowers. For existing borrowers, it may take as much as a year for the benefits to be transmitted.

Banks currently set their lending rates based on the average cost of funds on deposits outstanding.

Reserve Bank of India (RBI) governor Raghuram Rajan has repeatedly emphasized the need for banks to pass on interest rate cuts, saying less than half had been passed on to consumers this year.

While RBI has cut its benchmark rate by 125 basis points in 2015, lending rates have come down only by 60 basis points, RBI said in its December monetary policy review. One basis point is one-hundredth of a percentage point.

“While these guidelines will benefit new customers, existing customers will also have an option to shift to the new regime with some conditions,” Arundhati Bhattacharya, chairman of the nation’s largest lender State Bank of India, said in an emailed statement. “Sufficient time has been given to banks to switch over to the new regime of marginal cost of funds-based lending rate.”

By allowing banks to move to the new system for fresh loans and giving them the option to stay with the base rate system for existing loans, lenders will be spared a one-time hit to profits, which some had feared.

The Indian banking sector has struggled through a number of rate-setting methods over the last few years and has moved from a benchmark prime lending rate (BPLR) system to a base rate (or minimum lending rate) system and now the marginal cost of funds-based lending rate (MCLR). This time around, the shift was once again driven by weak transmission of interest rate cuts.
According to the new rules, every bank will be required to calculate its marginal cost of funds across different tenors. To this, the banks will add other components including operating cost and a tenor premium. A tenor premium is the compensation for the risk associated with lending for a longer time.

Taking all these components into account, banks will then publish an MCLR for overnight loans, one-month, three-months, six-months and one-year loans. This MCLR will act as the minimum or base lending rate for that tenor of loans irrespective of the borrower.
The final lending rate will be MCLR plus the spread that banks will charge for individual categories of borrowers.

“Apart from helping improve the transmission of policy rates into the lending rates of banks, these measures are expected to improve transparency in the methodology followed by banks for determining interest rates on advances,” RBI said in a statement on Thursday.

“The guidelines are also expected to ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks,” it said.
Bankers said the new rules related to differentiation based on loan tenor will help them price their loans better.

“The differentiation based on tenor will be a big positive for banks as now we would be able to price our loans based on the deposits of the corresponding tenor, rather than the older practice of considering 3-6 month deposit rate for computing base rates for all loans,” said R.K. Bansal, executive director at state-owned IDBI Bank Ltd. “Now we would be able to avoid this mismatch.”

With the inclusion of shorter term MCLR rates, banks can compete with the commercial paper market as well, Bansal added.

The new rules will reduce the cost of borrowing for companies, according to a Canara Bank official, who declined to be named as he is not authorized to speak to reporters.

“This has made the lending rate framework more dynamic as different banks could have different MCLRs for different tenures,” the official of the state-run lender said
In its circular, RBI said banks should specify the dates on which interest rates would be reset for borrowers. This reset must have at least once a year but can happen more frequently as well.

“The MCLR prevailing on the day the loan is sanctioned will be applicable till the next reset date, irrespective of the changes in the benchmark during the interim period,” said RBI.

Banks, however, have been given the option to keep outstanding loans linked to the base rate system even though it said existing borrowers will also have the option to move to an MCLR linked loan “at mutually acceptable terms”.

Most banks are unlikely to offer this option easily, said a banker who declined to be identified, which means that any immediate hit to profitability may be avoided.
“We don’t expect much of an impact on margins since the existing loans have been left untouched,” said Bansal.

Certain loans such as those extended under government schemes or under restructuring package, advances to banks’ depositors against their own deposits, loans to banks’ own employees including retired employees and loans linked to a market-determined external benchmark will be exempt from the MCLR rule, RBI said.

Fixed-rate loans granted by banks will also be exempt from MCLR. However, in case of hybrid loans where the interest rates are partly fixed and partly floating, interest rate on the floating portion should adhere to the MCLR guidelines.

RBI had mooted adoption of marginal cost of funds for calculation of lending rates in its April policy citing lack of effective transmission of its rate cuts into bank base rates. Bankers cited the stickiness of deposit rates and lack of credit demand as reasons for the delay in passing on lower rates.

“There might be short-term problems when dealing with the new norms as banks might want to offer better spreads to their larger customers who can negotiate a better rate. However, once the system stabilizes, it will be more or less uniform across the board and borrowers will get rates which reflect the interest rates in the economy better,” said Vibha Batra, senior vice-president at rating company Icra Ltd.

Batra added that there could be some shuffling in the home loan segment since existing borrowers will also want to move to an MCLR-linked rate if they see that as being cheaper. Banks, however, may be reluctant to allow existing borrowers to move.

“Lenders will have to come up with better schemes to retain home-loan customers by allowing them to move to the MCLR regime,” said Batra.

Source :BankingUpdates
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