Bank of Maharashtra bucks the trend, cuts MCLR by 20-35 basis points

The state-owned lender cut overnight and one-month MCLR by 25 bps to 6.90 per cent and 7 per cent

Bank of Maharashtra cut its marginal cost of funds-based lending rate (MCLR) by 20-35 basis points (bps) across tenors effective July 11, bucking the trend of lenders raising rates after the central bank hiked the benchmark policy rate by 90 basis points in last two months.

The lender cut overnight and one-month MCLR by 25 bps to 6.90 per cent and 7 per cent. The three-month MCLR was cut by 35 bps to 7.20 per cent. Six-month and one-year MCLR were cut by 20 bps to 7.40 per cent and 7.50 per cent, according to the bank’s notification to the stock exchanges.

Lending rates have been going up since May after the Reserve Bank of India’s six-member monetary policy committee (MPC) raised the repo rate by 40 bps to 4.40 per cent, almost after three years. The following month the rate setting body increased the rate by 50 bps more, taking the repo rate to 4.90 per cent, to tame the headline inflation, which was above the RBI’s tolerance limit for quite some time.

While the external benchmark linked loan interest rates have gone up by 90 bps for all banks, the MCLR linked loans rates have been raised disproportionately by lenders depe­nding on their cost of funds.  

The Pune-based public sector lender ramped up its loan growth in FY22 and continued that in Q1FY23. The YoY growth in advances improved 11.44 per cent YoY basis in Q2FY22 to 26.93 per cent in the quarter ended June 2022 (Q1FY23). Its loan book grew at double the rate at which the banking system’s loan expanded (13.2 per cent) in June 2022. The credit-to-deposit ratio was 71.65 per cent at end of June 2022 up from 63.42 per cent a year ago. At the end of Q1, the bank's advances stood at Rs 1.4 trillion and deposits at Rs 1.95 trillion.
 

A S Rajeev, managing director and chief executive officer at Bank of Maharashtra, said the MCLR revision was a course correction as the bank’s rate across maturities were higher by over 20 bps than competitors. Another bank executive said that bond yields like 10-year government of India benchmark bonds in the market have been established and are likely to stay that way in the near term, offering the bank room for course correction.

This will not impact the net interest income, official said. According to the latest Reserve Bank data, as of March 2022, about 43.6 per cent of loans of scheduled commercial banks is linked to the MCLR.

Bank of Baroda raises MCLR

Meanwhile, Bank of Baroda has hiked MCLR by 10-15 bps on some tenors, effective July 12. According to the bank's exchange notification, overnight and one-month MCLR remain unchanged but the three-month and six-month MCLR has been hiked by 10 bps to 7.35 per cent and 7.45 per cent respectively. Similarly, the one-year MCLR has been hiked by 15 bps to 7.65 per cent.

After the MPC’s rate hike in June, HDFC Bank last week raised its MCLR by 20 bps. HDFC Bank, India's largest private sector lender, last raised its MCLR by 35 basis points in June, a day before the MPC meeting. It had also hiked its MCLR by 25 bps in May. Since May, State Bank of India (SBI) has hiked its MCLR by 30 bps. And, since April, it has hiked MCLR by 40 bps. It raised MCLR by 20 bps last month after MPC’s decision to hike repo rate by 50 bps.