State Bank of India, the countryâ€™s largest lender, announced loan rates based on marginal cost of funds as the nationâ€™s central bank pushes for faster pass-through of cuts in its borrowing benchmark.
The Mumbai-based bank set charges for seven maturities, varying from 8.95 percent for overnight lending to 9.35 percent for three years, a statement posted Monday on its website showed. All Indian banks must announce new loan rates that will take effect April 1.
The Reserve Bank of India introduced marginal cost of funds-based lending rates to ensure benchmark policy-transmission and improve transparency in the way in which banks calculate charges on borrowings. Prime Minister Narendra Modiâ€™s administration is betting on cheaper loans to spur investment by boosting credit growth.
Under the new system, lenders will have to publish changes in rates for different maturities and review them each month after accounting for market shifts. Banks currently use average costing to determine their base rates.
This method of calculation has allowed the nationâ€™s largest lenders including State Bank of India to reduce their base rates by about 70 basis points or less, which is lower than the RBIâ€™s 1.25 percentage-point cut in its benchmark. SBIâ€™s base rate stands at 9.3 percent.
â€œWe are not expecting pressure on banksâ€™ lending margins as they can charge a spreadâ€ over the marginal cost of funds lending rate, Hatim Broachwala, a Mumbai-based banking analyst at Nirmal Bang Institutional Equities, said by phone.
â€œQuicker pass-through of benchmark policy changes through the new methodology â€œmay not happen immediately,â€ he said.
State Bank of India is an Indian multinational, public sector banking and financial services company. It is a government-owned corporation with its headquarters in Mumbai, Maharashtra. As of 2014-15, it has assets of Indian Rs.20,48,080 crores and more than 17000 branches, including 191 foreign offices spread across 36 countries, making it the largest banking and financial services company in India by assets.
State Bank of India is one of the Big Four banks of India, along with ICICI Bank, Bank of Baroda and Punjab National Bank.