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Your loans may get cheaper with banks implementing the new lending rate structure called marginal cost based lending rate (MCLR).

The State Bank of India (SBI) on Thursday became the first bank to announce its MCLR. All banks will have to price their loans on MCLR from April 1. HDFC Bank also followed suit by matching the interest rates offered by SBI. Bank of Baroda, State Bank of Travancore also announced their MCLR which are are higher. Others who came out with their MCLR was Canara Bank, Union Bank of India and Punjab National Bank.

All home loans from SBI would get cheaper by 0.10% lower than the bank’s current rate home loan rate of 9.55%, irrespective of whether you have a reset clause. Even for the other banks the rates will come down on home loans and corporate loans.

Even corporate loans contracted from the commercial paper market will shift to the bank’s credit book as the rates are lower in certain tenures or comparable to the commercial market rates.

Anshula Kant, chief financial officer, SBI, told dna that the home loans would get cheaper by 0.10% and would be pegged now at 9.40% for women borrowers and 9.45% for general category customers.

“Though our one year rate is at 9.20%, we will build some risk premiums above this, both for the corporate and retail borrowers. The risk premiums for corporate borrowers will be higher than retail borrowers but for both category customers the loans will be cheaper as we move towards a softer interest rate regime. So the retail loans will continue to be the cheapest from our bouquet of loan products,” says the CFO.

Overnight loan from SBI and HDFC Bank will be at 8.95%, while one month, at 9.05%, three months at 9.10% and one year at 9.20%, and two year money at 9.30%. The longer tenure loans such as three to five year loans will now get priced at 9.80%. Almost the entire commercial market is expected to shift to the bank credit book as the rates match commercial paper rates.

Bank of Baroda will offer overnight loans and loans for one month at 9%, 3 month at 9.05%, 6 month at 9.10%, one year at 9.30%, 3 year at 9.35 and 5 year at 9.05%, while State Bank of Travancore has higher rates with overnight rate at 9.35% 3 month at 9.55%. Canara Bank pegged its 1 year rate at 9.40% and five year at 9.70% and Punjab National Bank kept its 1 year rate at 9.40% and five year rate at 9.70%.

SBI is also planning to launch some fixed rate auto loans and personal loans.

A leading rating agency, India Ratings said in a note that it expects the shortest tenor MCLR for bigger banks to be around 0.9-1% 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 0.70%-0.75% of tenor premium evident in the market, the difference from the base rate can be around 0.25% -0.30%.”

According to the rating agency, the MCLR implementation has the potential to channelise the recent surge of volumes in the commercial paper market towards bank credit. “The outstanding commercial paper borrowing as a percentage of short term bank credit has gone up to 14% in 2015-16 (from 11% last year) and 3-5% of which – Rs 74,500 crore to Rs 1.2 trillion – is likely to flow back into the banking system as rates get competitive.”

Parag Jariwala, vice-president – institutional research, banking and financial services, Religare Capital Markets, believes it is difficult to access margin impact as spread for each type of loans will be different. “In addition, maturity pattern does not adequately reflect tenors for which loans are taken initially. However, management highlighted that any borrower who will chose 1 year re-set, lending rates will come down by around 10 basis points.

Home loans, term loans to SME-MSME and mid-corporates will largely fall into this category. Therefore by and large, lending yield should go down by0.10%,” Jariwala said in the note.


 

Source: dnaindia.com

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