State Bank of India has revised lending rates based on marginal cost of funds, a new methodology that will take effect from tomorrow.
The new interest rates vary from 8.95 per cent for overnight to 9.35 per cent for 3 years, SBI said in a document posted on its website today.
The base rate or the minimum lending rate of the bank is 9.3 per cent. The other lending rates are 9.05 per cent for one month, 9.10 per cent for three months and 9.15 per cent for 6 months, it said. For one year loan, the interest rate would be 9.20 while for two years it is going to be 9.3 per cent.
Reserve Bank had asked banks to price fixed rate loans of up to three years based on their marginal cost of fund from April 1.
All banks will follow Marginal Cost of Funds based Lending Rate (MCLR) system, a new uniform methodology which will ensure fair interest rates to borrowers as well as to banks from tomorrow.
Currently, most banks decide lending rates based on average cost of funds. According to India Ratings and Research (Ind-Ra) the implementation of Marginal Cost of Funds-based lending rate (MCLR) has the potential to channelise the recent surge of volumes in the commercial paper market towards bank credit.
Ind-Ra expects the shortest tenor MCLR for bigger banks to be around 90-100 basis points lower than the base rate, while making it comparable to commercial paper rates with similar tenor. On the longer end (one year rate) considering the 70-75 basis points of tenor premium evident in the market, the difference from the base rate can be around 25-30 basis points.
The MCLR is expected to address the RBI's primary objective, of expediting monetary policy transmission along with augmenting uniformity and transparency in the calculation methodology of lending rates, it said.
Ind-Ra expects banks margins in FY'17 to face downward pressure on the back of this transition; the impact however will be different across banks, based on the variances in their Asset Liability Management (ALM) gaps, floating rate book, current account savings account (CASA) ratios, share of borrowing in the funding profile and differences in their operating cost structure.