Banks slashed rates post Modi speech
State Bank of India slashed interest rates to the lowest in about a decade, forcing rivals to follow suit in the fight for market share, a day after Prime Minister Narendra Modi urged lenders to broaden their focus to the vast range of poorly served borrowers from the poor to the middle class.
The country’s largest bank cut rates by 0.9 percentage point, or 90 basis points (bps), making its loans the cheapest among all lenders. The government-owned SBI pegged its or marginal cost of lending rate (MCLR) – the benchmark for its best customers – at 8% for one year, down from 8.90%.
State-owned Union Bank of India and Punjab National Bank also announced cuts ranging from 60 to 90 basis points. Delhi-based PNB will charge 8.45% for a year while Union Bank will charge 8.65%. The new rates will be effective for new borrowers. The old borrowers will get the benefit of new rates at the end of the lock-in period, when rates are revised in line with prevailing levels. The lock-in could vary from one month to three years, depending on the loan agreement.
“History is witness that the Indian banking system has never received such a large amount of money in such a short time,” Modi said in his December 31 address to the nation. “While respecting the autonomy of the banks, I appeal to them to move beyond their traditional priorities, and keep the poor, the lower middle class and the middle class at the focus of their activities.”
This series of rate reductions is among the sharpest in one shot since the cuts that followed the 2008 financial crisis. In the past, banks have typically lowered lending rates by increments of 5 to 10 basis points as they transmitted monetary policy or the cost of funding dropped.