The country's largest bank has figured out a way to get the rate cut reach you faster

Mumbai: State Bank of India will move to a new floating rate benchmark for business and retail loans, delivering a rate cut for existing loans worth ₹8 lakh crore. The country’s largest bank will shift to the six-month marginal cost of lending rate (MCLR) versus one-year MCLR, an SBI official said. The external benchmark-based rate will be applicable for new loans. “While all new borrowers are taking benefit of the series of rate cuts, our MCLR borrowers have to wait for reset date,” said J Swaminathan, deputy managing director, finance, SBI. “When cuts are happening every two months, customers have to wait for reset date. So we decided to change our benchmark to six-month MCLR. This will lead to much faster policy rate transmission as rates will reset faster.” Customers were earlier only allowed to reset loans once a year.Rate change is expected to benefit existing floating rate borrowers. It will not affect short-term borrowers or those who have borrowed under fixed rate. SBI’s loan book is worth over ₹24 lakh crore. At the time of loan renewal, the bank will opt for the six-month benchmark, while customers looking to advance the reset date will be charged a small fee. Customers stand to benefit with a tenor discount straight away, as the state-owned lender’s six-month MCLR is 6.95% while one-year rate is 7%.‘We Aligned Rates at 6.65%’India’s interest rates have been falling sharply, with the Reserve Bank of India cutting the benchmark repo rate by 160 basis points in FY20. It further cut rates by 40 bps in May to spur economic growth amid the coronavirus-induced breakdown. The repo rate is now at an all-time low of 4%. Since April 2019, SBI has cut its MCLR by 155 bps, versus the RBI’s 200-bps repo rate reduction.77057903In October 2019, the regulator directed banks to move to external benchmark-based lending rate (EBLR) for faster policy rate transmission. In this regime, the state-owned lender has passed on the entire benefit to its customers. About 70% of SBI’s loan book is currently linked to rates under the MCLR regime.The bank has also lowered its shorter term MCLR of one month and three months by 5-10 bps, bringing it down to a historical low of 6.65%. This is the 14th consecutive reduction and completes full rate transmission at the shorter end of the MCLR regime.“The short-term yields have been falling, so we wanted to align ourselves so we remain competitive in that market as well,” said Swaminathan. “Large corporates borrow on the one-month to three-month window, so this directly helps with immediate credit offtake. Short-term borrowers on the MCLR regime were not getting the benefit of the fall in rates, so we aligned the short term EBLR and the MCLR rate at 6.65% so customers benefit equally.”SBI’s MCLR rates are one of the lowest in the industry. While the three-month MCLR of SBI is 6.65%, for other scheduled commercial banks, it ranges between 7.20% to 8.95%.

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