COVID-19 has caused a crunch in the finances of all the households almost equally, and banks are doing everything they can to maintain the liquidity in the economy. Banks and NBFCs have cut the Marginal Cost of Funds Based Lending Rate, which is the minimum lending rate, by around 100 bps since the beginning of FY20.
Banks Ease Interest Rates
Banks like the State Bank of India (SBI) and HDFC Bank have lowered car and home loan interest rates, so have the other banks. This has been necessary to boost the country’s GDP by avoiding a liquidity crisis.
There has been a hefty cut in the basis points (bps) too. While the Canara Bank and the SBI have cut their MCLR by 10 bps, Bank of Maharashtra and HDFC have taken it as far as 20 bps, across all tenors. The RBI has declared the highest cut so far, a whopping 115 bps in 2020.
Bank deposits have been growing at a brisk rate of 10% every year. Given the large surpluses with the banks, the interest rates expected to soften further. Even with a stagnant credit takeoff, HDFC expects a 21% loan growth in the first quarter of FY21.
While SBI’s MCLR is going to remain at 7% for the rest of the year, after being revised for the 7th time, Canara Bank’s MCLR now remains constant at 7.55%. The shorter-term reduction in MCLR s done to improve credit takeoff, increase demand, and maintain the stability of the economy at a macro level.