Happy New Year: Consumers cheer as PSU banks cut lending rates

IT IS indeed a New Year gift from the top PSU lenders including State Bank of India, PNB and Union Bank as the leading state-run banks on January 1 cut their benchmark lending rates by up to 90 basis points. The move followed a day after Prime Minister Narendra Modi asked banks to priorities their lending towards the poor and middle class.
SBI has reduced marginal cost of funds based lending rate (MCLR) by 0.9 per cent from 8.90 per cent to 8 per cent for one-year tenure. The banks were flushed with funds after demonetization and this resulted in cutting down of base interest rate for...
other tenures, including one month, three months and six months, has been slashed by 0.9 per cent.
MCLR has been reduced by 0.9 percentage points to 8.10 per cent for two-year term and 8.15 per cent for three-year tenure.
Punjab National Bank (PNB) and Union Bank of India (UBI) too have brought down the benchmark interest rate by up to 0.9 per cent.
PNB has cut its one-year MCLR rate by 0.7 per cent to 8.45 per cent from 9.15 per cent, effective from January 1. Lending rate was moderated by similar percentage points for 3 years and 5 years period to 8.60 per cent and 8.75 per cent, respectively.
Union Bank of India has reduced its MCLR by 0.65-0.9 per cent to 8.65 per cent, effective today. The revised one-year MCLR stands at 8.65 per cent.
Reacting to the move by PSU banks to cut lending rates, Economic Affairs Secretary Shaktikanta Das said in a tweet, "Trend of interest rate reduction follows demonetisation. Banks have substantial quantum of low cost funds now."
"Welcome reduction of interest rates by SBI. Loan disbursements expected to pick up. Positive for the economy," he added. On December 31, Prime Minister had asked banks to pay special attention towards the need of poor and middle class. "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," he had said.
Last week, SBI's subsidiary State Bank of Travancore had announced reduction in the lending rate, followed by another public lender IDBI which cut base interest rate by up to 0.6 per cent.
Banks have moved to MCLR as their new benchmark lending rate from June, replacing the base rate system for new borrowers. It is calculated on the marginal cost of borrowing and return on net worth for banks. It was introduced by RBI to ensure fair interest rates to borrowers as well as banks.