PSU banks mull over ways to aid rate transmission

Mumbai: State-owned banks have sprung into action to reduce loan rates and link rates on consumer loans to an external benchmark after the Reserve Bank of India nudged lenders to hasten transmission of monetary policy rates. After cutting repo rate by 35 basis points on Wednesday, Reserve Bank of India Governor Shaktikanta Das said the central bank won’t hesitate to take steps to hasten transmission. Das had said that banks; overall weighted average lending rates on fresh rupee loans were down only 29 bps between February and June, compared with 75 bps reduction in repo rate in the same period.

Since Wednesday, some public sector lenders have reduced their marginal cost of fund-based lending rates by 5-25 bps. Union Bank of India on Friday said that it sees scope for a 15 bps reduction in lending rates based on the liquidity and interest rate scenario. In order to provide better interest rate transmission, it shall soon link its housing and vehicle loan portfolio to repo rate from the current MCLR, the bank said.

Another lender, Bank of India said that it is working on necessary modalities to launch consumer loans based on repo rate-linked lending rates in this month. Meanwhile, Syndicate Bank introduced repo rate-linked loans and deposit products, becoming the second bank after State Bank of India to do so. The same style was echoed by Oriental Bank of Commerce (OBC). The bank has now announced repo rate linked retail loan products for its customers. The facility is expected to benefit borrowers by better transmission of policy rate, the bank stated. “The product details will be available soon. The Bank has also hosted facility for online application and tracking of retail loans on its website.”

Meanwhile, Chennai-based Indian Overseas Bank, has also reduced its rates by 15 bps in one year and above tenors and 10 bps in below one-year tenors with effect from August 10. The Bengaluru-based Canara Bank too decided to pass on the benefit of reduction in interest rates by the RBI and has cut its loan pricing by 10 bps across all tenors, effective August 7.

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