Corporation Bank, HDFC bank, BOI join the rate cut bandwagon, slash lending rate by 0.9 per cent

Joining the rate cut bandwagon, several banks and housing finance companies, including HDFC, on Wednesday lowered their lending rates by up to 0.9 per cent -- which will lead to cheaper home and corporate loans.

Among banks, Corporation Bank, Bank of India and Punjab & Sind Bank slashed their marginal cost of funds based lending rate (MCLR). Taking a cue from State Bank of India and other major lenders, mortgage finance company HDFC Ltd, Indiabulls Housing Finance too reduced lending rate by up to 0.45 per cent.

Loans up to Rs 75 lakh will attract interest rate of 8.7per cent per annum, while it will be 8.75 per cent for higher amounts, HDFC said in a statement.  A woman applicant will get a discount of 0.05 per cent in interest rate. HDFC's earlier benchmark rate was 9.1 per cent. Besides, Bank of India reduced its MCLRs upto 0.9 per cent.

For one year, the MCLR is now 8.50 per cent, down 0.75 per cent. However, overnight MCLR has been reduced by 0.9 per cent to 8.1 per cent effective January 7.

Another public sector lender Punjab and Sind Bank lowered the one-year MCLR to 8.75 per cent, down by 0.8 per cent. At the same time, it also slashed base rate or the minimum lending rate by 0.05 per cent to 9.70 per cent effective on Wednesday. Corporation Bank also lowered 1-year MCLR rate by 0.7 percent to 8.75 per cent.

Spurt in deposit due to demonetisation has provided banks space for lowering lending rate. The reduction in lending rates may prompt increase in credit offtake which has moderated substantially putting burden on balance sheet of banks. More banks are expected to cut the lending rate in the coming days. Even fixed deposit rates are expected to comedown and announcement to this effect would be made in the next few days.

Banks have switched to MCLR as their new benchmark lending rate from June last year, 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 borrowersas well as banks. MCLR also seeks to address the regulator's primary objective of expediting monetary policy transmission along with augmenting uniformity and transparency in the calculation methodology of lending rates. MCLR rates are revised every month.