Earlier were the days when banks used to play around with the interest rates. With the new introduction of interest rate calculation by RBI, since April 1, 2016, the competition amongst banks is running on a high speed.
Banks have to review their interest rates every month and publish on a pre-announced dates. Also, full-fledged review of the customer’s risk profile is high in priority before lending the loan amount and in deciding the spread and the final interest rate.
So, how is it advantageous to customers?
Solution to this question lies within the following question.
Did banks ever observe the change in base rate and implement in their interest rate?
To make it practical…imagine you borrowed loan amount at 10% interest rate. Out of which, say, 9.5% is base rate and 0.5% is spread. If RBI changes the base rate to 9%, your interest rate is supposed to be 9.5% (9% +0.5%). But what happens in reality, the banks with unknown reasons, increase the spread. Instead of 0.5%, the banks can take a chance to increase the spread to 1%.
Now, with MCLR in existence, banks should consider the customers risk profile in detail, to decide on spread. Banks can’t easily get arbitrary with spread changes.
What will be the impact of 0.25% lesser interest rate on home loans?
The longer the remaining tenure, greater the impact. The saving can be in hundreds per month. But, when you calculate you end up saving atleast a month’s EMI.
A cut in small savings rate is likely to bring down bank deposit rates and ultimately lead to a drop in lending rates as well.
The other aspect,
For a borrower in April 1 get loans at the prevailing MCLR (9.3%), but a month later a new borrower might get a loan at a lower MCLR if the cost of funds drops. For the April borrower, it will take three more quarters for his loan to get reset. In other words, there could be 12 sets of one-year MCLR if cost of funds change every month.
Corporate customers are also likely to look at shorter term loans to take advantage of falling rates. This will mean that banks which borrow for longer terms but have give term loans will face an asset-liability mismatch – though the only issue there is that bank earnings become volatile, they don’t usually face a crisis because of that.
Observe the revised interest rates by various banks..
|Bank / NBFC||Current Base Rate, PLR||New MCLR April 2016||Latest Update|
|Allahabad Bank||9.70%||9.30% – 9.60%||01st Apr 16|
|Andhra Bank||9.75%||–||29th Sep 15|
|Axis Bank||9.50%||9.10% – 9.65%||01st Apr 16|
|Bajaj Finserv (PLR)||20.16%||–||01st May 14|
|Bank of Baroda||9.65%||9.00% – 9.35%||01st Apr 16|
|Bank of India||9.70%||9.15% – 9.40%||01st Apr 16|
|Bank of Maharashtra||9.70%||9.10% – 9.65%||01st Apr 16|
|BNP||9.50%||–||23rd Sep 13|
|Canara Bank||9.65%||9.00% – 9.45%||01st Apr 16|
|Catholic Syrian Bank||10.50%||–||01st Dec 11|
|Central Bank of India||9.70%||–||08th Oct 15|
|Citi Bank||9.25%||–||12th Oct 15|
|City Union Bank||10.50%||–||01st Nov 15|
|Corporation Bank||9.65%||–||08th Oct 15|
|DBS Bank||9.10%||–||01st Feb 16|
|Dena Bank||9.70%||9.30% – 9.60%||01st Apr 16|
|Deutsche Bank||9.20%||–||19th Oct 15|
|Development Credit Bank||10.70%||–||14th Dec 14|
|Dhan Laxmi Bank||11.40%||–||03rd Nov 15|
|DHFL PLR||18.30%||–||08th Oct 15|
|Edelweiss PLR||17.50%||–||30th Nov -1|
|Federal Bank||9.63%||9.14% – 9.60%||01st Apr 16|
|GIC Housing Finance PLR||15.00%||–||30th Nov -1|
|HDFC PLR||16.30%||–||05th Oct 15|
|HDFC Bank||9.30%||8.95% – 9.35%||01st Apr 16|
|HSBC Bank||9.10%||–||09th Nov 15|
|ICICI Bank||9.35%||9.40% – 9.70%||01st Apr 16|
|IDBI Bank||9.75%||–||30th Sep 15|
|IIFL PLR||17.50%||–||01st Apr 14|
|Indiabulls PLR||17.05%||–||08th Oct 15|
|Indian Bank||9.65%||9.20% – 9.70%||01st Apr 16|
|Indian Overseas Bank||9.90%||9.50% – 9.90%||01st Apr 16|
|IndusInd Bank||10.60%||–||19th Oct 15|
|Jammu and Kashmir Bank||9.50%||–||05th Oct 15|
|Karnataka Bank||10.25%||8.95% – 9.20%||01st Apr 16|
|Karur Vysya Bank||10.40%||–||05th Oct 15|
|Kotak Bank||9.50%||8.90% – 9.65%||01st Apr 16|
|Lakshmi Vilas Bank||10.55%||–||08th Feb 16|
|LIC Housing Finance PLR||14.20%||–||10th Oct 15|
|Nainital Bank||9.75%||–||21st Oct 15|
|OBC||9.70%||–||30th Sep 15|
|PNB||9.60%||9.15% – 9.55%||01st Apr 16|
|PNB Housing Finance||14.35%||–||27th Apr 15|
|Punjab and Sindh Bank||9.75%||–||05th Oct 15|
|Ratnakar Bank||10.65%||–||16th Oct 15|
|Reliance Capital PLR||18.00%||–||01st Nov 15|
|SBBJ||9.70%||–||05th Oct 15|
|SBI||9.30%||8.95% – 9.35%||01st Apr 16|
|South Indian Bank||10.00%||9.50% – 10.00%||01st Apr 16|
|Standard Chatered Bank||9.50%||8.45% – 9.65%||01st Apr 16|
|State Bank of Hyderabad||9.75%||–||08th Oct 15|
|State Bank of Mysore||9.65%||–||07th Oct 15|
|State Bank of Patiala||9.65%||–||05th Oct 15|
|State Bank of Travancore||9.95%||–||05th Oct 15|
|Syndicate Bank||9.70%||9.65% – 9.65%||01st Apr 16|
|Tamilnad Mercantile Bank||10.40%||–||15th Oct 15|
|UCO Bank||9.70%||–||05th Oct 15|
|Union Bank of India||9.65%||9.25% – 9.45%||01st Apr 16|
|United Bank of India||9.65%||–||12th Oct 15|
|Vijaya Bank||9.65%||–||08th Oct 15|
|Yes Bank||10.25%||9.00% – 9.60%||01st Apr 16|
To know more about MCLR, its calculation and the difference between base rate and MCLR, refer the following link.