Country's second biggest private sector lender HDFC Bank today cut its benchmark lending rate by up to 0.90 per cent, joining over a dozen banks and housing finance companies that have slashed rates in last few days.
The bank's asset liability committee decided for a cut of 0.75-0.90 per cent in marginal cost of funds-based lending rate (MCLR) across multiple tenures.
When contacted, its executive director Kaizad Bharucha confirmed the move and said this has primarily been driven by the huge amount of liquidity in the system due to demonetisation.
"The rates have been calculated based on liquidity position and all benefits have been passed on to borrowers. The new rates are effective January 7," he told PTI.
Even though IDBI Bank and State Bank of Travancore had announced cuts in the last week of 2016, the lending rate lowering by banks got-off with country's largest lender SBI slashing its offerings by a flat 0.90 per cent on Sunday, a day after being exhorted by Prime Minister Narendra Modi to help the poor and marginalised sections.
KMB had used a provision under the MCLR computation methodology wherein a bank can use its discretion while reviewing rates, going beyond the actual movement in costs.
HDFC Bank's Bharucha said the sharpness of the review -- which is the most aggressive one among private sector banks -- is "reflective of all factors at play" in the system.
Even as credit growth continues to be sagging, banks are flush with deposits of over Rs 14 trillion in scrapped notes which has led to excess liquidity.
Accordingly, the one-year MCLR which is used as the benchmark for a slew of products including home loans has come down 0.75 per cent to 8.15 per cent as against SBI's 8 per cent and ICICI Bank's 8.20 per cent.
The overnight MCLR, a bank's most aggressive offering, has been reduced by 0.85 per cent to 7.85 per cent, while the maximum decrease of 0.90 per cent has been effected in the 3 months MCLR which will go down to 7.90 per cent.
Bharucha, however, did not comment on the impact on margins because of the move, citing the pre-earnings 'silent period' it is in. He did not disclose the quantum of deposits received by the bank as well.
The bank has not yet taken any action on the deposit rates front, he said, adding that it will feature in the subsequent meetings of the ALCO and the lending rates will move correspondingly.
The Reserve Bank had introduced the MCLR system from April last year, replacing the six-year old base rate system, in order to ensure better transmission of its policy actions by banks who were seemingly reluctant.