The RBI’s new marginal cost of funds-based lending rate (MCLR) norms for banks is coming into effect, which is likely to lower borrowing costs and improve monetary transmission. Speaking to Bloomberg TV India, SBI MD PK Gupta said a 25 bps cut in both policy interest rates and CRR at RBI April policy review is virtually priced in by the market.
Take us through the changes beeing carried out by SBI...
According to RBI instructions, the banks are supposed to announce their MCLR, which will be effective from the 1st of April. The RBI had issued some clarifications two days back on how the MCLR should be computed. I think one of the major changes is that wherever the banks have the largest deposits in whichever bucket it falls, the MCLR will be determined based on that. In our case the largest was the one-year bucket. So based on whatever is the weighted average cost of funds, we have declared our MCLR. And the tenor premiums have been adjusted accordingly. All new loans from April will be linked to the new MCLR.
That is what the MCLR regime is all about and that is what the RBI circular also says — that gradually the old loans will switch over to the MCLR. The RBI instructions say that as and when existing loans get renewed, they will switch over to the MCLR. Old loans can also be switched to the MCLR and borrowers will have an option for that as per the mutually agreed terms between the bank and the borrower.
When will the revisions in lending rates take place?
The MCLR will be set every month. The RBI circular on this is very clear — that whatever is the effective date for MCLR, banks are supposed to decide it seven days prior to that and announce the rate on the 6th day of every month. So we will be publishing the calendar for the entire year detailing the dates on which the new MCLR will be announced.
Is there scope for the deposit rates to go down further?
I think the deposit rates have already been cut by the banks. Going forward, it will also depend on two factors: one, what the RBI does on the April 5 monetary policy review; and secondly, what is the liquidity situation in the market. You can’t really cut the deposit rates when the liquidity is tight. Right now the liquidity is tight in the market maybe because it is yearend. So if the liquidity position eases next month then we will see if deposit rates can be revised.
Is there scope for the RBI to cut the (CRR) also?
I think a CRR cut of 25 bps is practically priced in by the market. The market will be pleasantly surprised if the cut is larger than 25 bps. Banks have been asking for a CRR cut for two reasons — one, it eases liquidity and second, it gives banks the room to cut rates also.