Banks are ringing in the New Year with steep cuts to their lending rates.

State Bank of India on Sunday slashed its marginal cost of funds-based lending rate (MCLR) by 90 basis points across all maturities, effective January 1, making home, auto, personal and other loans cheaper.

Union Bank of India too reduced the MCLR across tenors by 65 to 90 basis points effective from January 1.

Copious inflow of deposits in the form of scrapped ₹500 and ₹1,000 notes during the 50-day demonetisation period, which ended on December 30, 2016, and the slump in credit demand have prompted the government to nudge banks to cut their lending rates so as to revive demand in the economy.

Following the cut, the one-year MCLR of India’s largest bank is at 8 per cent as against 8.90 per cent hitherto.

All rupee loans sanctioned and credit limits renewed by banks with effect from April 1, 2016 are priced with reference to the MCLR.

SBI Managing Director Rajnish Kumar said, “We got deposits amounting to about ₹1.5 lakh crore (between November 8 and December 30, when the demonetisation scheme was in place).”

The deposits, in the form of inflows into savings bank and current accounts, had stabilised at around ₹1.4 lakh crore, he added.

“There has not been much credit offtake since November 9. The loan book needs to grow. Now that the deposit cushion is available, we have cut the MCLR. We want to give a boost to the housing and construction sectors”.

SBI will announce the product-level pricing (new rates on home, auto, personal and other loans), taking into account the risk premium and the competitive position, on Monday.

With the MCLR being pegged at such a competitive level, Kumar said all the concessions, including those related to pricing, given by the bank to borrowers in the government and to defence employees, and women segments will go.

The SBI MD explained that on a 30-year home loan of ₹30 lakh, the minimum EMI benefit (reduction in EMI burden) that the borrower will get will be ₹1,200 per month. The overall benefit to the borrower over the entire tenure of the loan will work out to over ₹4 lakh.

Since the central bank began its rate cut cycle in January 2015, SBI said it has reduced its benchmark lending rate by 200 basis points. One basis point is equal to one-hundredth of a percentage point.

Also on Sunday, Union Bank of India sharply cut its one-year MCLR by 65 basis points to 8.65 per cent (from 9.30 per cent). With this, the total reduction since October 2016 in MCLR is 75 to 100 basis points for various tenors, the bank said.

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