SBI lowers base rate by 30 bps to 8.65%
, ET Bureau|
Jan 01, 2018, 01.49 PM IST
MUMBAI: State Bank of India announced a sharp reduction in lending rates for old customers whose loans were linked to base rates. On Monday, country's largest bank said that it has lowered base rate - the floor rate below which the bank does not give loans to prime customers - by 30 basis points to 8.65%.
With this reduction, SBI's base rate is lowest among lenders.
The reduction in rates comes as a major relief to many SBI customers. Almost half of SBI long term retail borrowers particularly students and the home loan borrowers have their lending rates linked to base rate. The other half of the retail borrowers have migrated to MCLR or marginal cost of lending rates system where in the lending rates are locked for a term of one year and rates are revised at the end of each year. Each banks have different rates for different period. For SBI it ranges from 7.70% for overnight borrowing to 8.10 for three years.
Prior of the MCLR system, all banks pegged their loans to base rate- a single rate and the risk and tenor premium added to it.
On September 28, SBI had revised it base rate by 5 basis points while other banks like Andhra bank and Bank of Baroda too announced a reduction in rates.
In order to bring more transparency in lending rates, the Reserve Bank of India has suggested that interest rate on loans be pegged to external benchmark rates arrived at by market trading rather than leaving it at the discretion of each bank which appear to be coming up with some formula that would defy the best rates for most customers.
In October, RBI pointed out "Arbitrariness in calculating the base rate and MCLR and spreads charged over them has undermined the integrity of the interest rate setting process. The base rate and MCLR regime is also not in sync with global practices on pricing of bank loans."
Data from the RBI shows that, between December 2014 and October 2016, a month before the demonetisation of Rs. 500 and Rs. 1,000 notes, banks' Base Rate on an average reduced 0.61 percent when the policy rate was lowered by 1.75 percentage point.
With this reduction, SBI's base rate is lowest among lenders.
The reduction in rates comes as a major relief to many SBI customers. Almost half of SBI long term retail borrowers particularly students and the home loan borrowers have their lending rates linked to base rate. The other half of the retail borrowers have migrated to MCLR or marginal cost of lending rates system where in the lending rates are locked for a term of one year and rates are revised at the end of each year. Each banks have different rates for different period. For SBI it ranges from 7.70% for overnight borrowing to 8.10 for three years.
Prior of the MCLR system, all banks pegged their loans to base rate- a single rate and the risk and tenor premium added to it.
On September 28, SBI had revised it base rate by 5 basis points while other banks like Andhra bank and Bank of Baroda too announced a reduction in rates.
In order to bring more transparency in lending rates, the Reserve Bank of India has suggested that interest rate on loans be pegged to external benchmark rates arrived at by market trading rather than leaving it at the discretion of each bank which appear to be coming up with some formula that would defy the best rates for most customers.
In October, RBI pointed out "Arbitrariness in calculating the base rate and MCLR and spreads charged over them has undermined the integrity of the interest rate setting process. The base rate and MCLR regime is also not in sync with global practices on pricing of bank loans."
Data from the RBI shows that, between December 2014 and October 2016, a month before the demonetisation of Rs. 500 and Rs. 1,000 notes, banks' Base Rate on an average reduced 0.61 percent when the policy rate was lowered by 1.75 percentage point.
