SBI Cuts Interest Rates on Loans by 10 bps and Term Deposits by 25 bps
Country's largest lender State Bank of India (SBI) on Monday announced a reduction in its marginal cost-based lending rate (MCLR) by 10 basis points (bps) across all tenors. At the same time, SBI also lowered interest rates on fixed term deposits across all maturities by up to 25 basis points.
 
The one year MCLR based lending rate will come down to 8.15% after the rate cut.
 
The move is the fifth consecutive reduction in MCLR by the lender so far this financial year.
 
In view of the falling interest rate scenario and surplus liquidity, SBI says it also realigned its interest rate on term deposits (TD) from 10 September 2019. SBI has slashed retail TD rates by 20-25 bps and bulk TD rates by 10-20 bps across tenors.
 
The cut in interest rates comes on the back of the Reserve Bank of India (RBI)'s 1.1 percentage point reduction in the repo rate - the key interest rate at which it lends short-term funds to commercial banks - so far this year.
 
The new rates are effective from 10 September 2019.
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    Oriental Bank reveals loan exposure to Nirav Modi, Choksi
    For the first time, the public sector Oriental Bank of Commerce (OBC) has come clean on its loan exposure to the absconding diamantaires Nirav Modi and his uncle Mehul C. Choksi, here on Friday.
     
    The development comes ahead of the OBC's upcoming merger with the Punjab National Bank (PNB) which - in February 2018 - had admitted to a massive fraud perpetrated by Nirav Modi and Choksi running into over Rs 13,500 crore, sending the entire banking industry in a spin.
     
    The OBC has now issued notices declaring the duo and their companies as 'Willful Defaulters' for varying loan amounts, totaling to around Rs 289 crore, at their Large Corporate Branch, Cuffe Parade, Mumbai.
     
    Nirav Modi's companies Firestar International Pvt. Ltd. and Fire Star Diamond International Pvt. Ltd. failed to repay the OBC's loans of Rs 60.41 crore and Rs 32.25 crore, respectively.
     
    Similarly, Choksi's companies Gitanjali Gems Ltd. and Nakashatra World Ltd. have defaulted on OBC's loans worth a total of Rs 136.45 crore and Rs 59.53 crore, respectively.
     
    Days after the scam erupted in February 2018 and it dawned that Nirav Modi and Choksi, along with other accused family members, had sneaked out of the country, the OBC promptly declared their accounts as 'NPAs' on March 21, 2018.
     
    Furthermore, the OBC has warned the masses to desist from entering any kind of deals with the (aforementioned) and appealed to the people to provide information of assets of Nirav Modi-Choksi or their transactions to enable the bank recover the 'public money' due from them.
     
    Banking circles question why it took the OBC a long period nearly 18 months to cough out is exposure in the matter, and just before its proposed merger with the PNB, along with United Bank of India, announced last month by Finance Minister Nirmala Sitharaman.
     
    "Besides OBC, other banks also have exposure to Modi and Choksi, and their group companies. What prevents them all from coming together and take necessary legal action to recover their dues," banking expert and Maharashtra Trade Unions Joint Action Committee (TUJAC) Convenor Vishwas Utagi told IANS.
     
    Utagi said the other bigger questions are: what action has been taken against the departments and officers dealing in foreign exchange in Reserve Bank of India and other affected banks, how much of the outstandings from (Nirav Modi-Choksi and others) accused have been recovered so far and whether the details emerging now are aunder pressure' before the upcoming mergers.
     
    Incidentally, in March this year, the OBC had got a life-saving dosage of Rs 1,186 crore capital infusion and more is expected after the mergers are completed.
     
    Earlier this year, the State Bank of India (SBI) had first bared its chest on a Rs 405 crore outstanding loan from Choksi and his family members.
     
    The SBI's disclosure came barely two days after it became public that Choksi had surrendered his Indian citizenship in favour of the nationality of Antigua & Barbuda Islands, in West Indies.
     
    In March this year, a relaxed and well-dressed Nirav Modi was seen sauntering down a street in London, sparking off a furore in India after which he was arrested by the UK authorities.
     
    Currently, India is making all-out efforts for getting both the uncle-nephew extradited to India and face the laws here.
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    COMMENTS

    TIHARwale

    2 months ago

    Arundati did not get post retirement assignment not for nothing

    TIHARwale

    2 months ago

    OBC board members were under impression Nirav has the blessings of uncle Apna Mehul Bhai enjoys support of elder brother so Nirav may also get a bail out

    mahendra kumar

    2 months ago

    Well drafted press release.

    mahendra kumar

    2 months ago

    OBC used to be very prompt in reporting fraud in certain cases even when any anonymous complaint comes but what happens when such big things happens? The release shows their eagerness to take steps in a NPA account. It does not show keen ness to declare the fraud in time as other banks did. They did not inform when whole country knew about Nirav and Choksi. Good work.

    Bidyasing Engti

    2 months ago

    Please give me loan
    In your company thanks,

    Linking Lending Rate to External Benchmark Must for New Loans; Old Borrowers Can Switch To the New System
    The long struggle to get the banks to charge customers of floating rate loans appropriately and transparently has now come to a happy end. Under severe political pressure to ensure that policy rate cuts are reflected in the new lending rates, the Reserve Bank India (RBI) has now made it mandatory for banks to link their loans to retail and small businesses, to an external benchmark. 
     
    This will bring in transparency and is expected to lead to a decline in lending rates for home, car and personal loans, etc, when repo rates fall. 
     
    Most importantly, millions of borrowers who have been denied the benefit of lower rates so far, will no longer be short-changed. They can demand that they be shifted to the externally-linked benchmark along with the new borrowers.
     
    Of course, it remains to be seen how banks actually react to such requests.
    The RBI circular says, “All new floating rate personal or retail loans (housing, auto, etc.) and floating rate loans extended by banks to Micro and Small Enterprises (MSEs) from 1 October 2019 shall be benchmarked…”
     
    RBI circular also says, “Existing loans and credit limits linked to the marginal cost of funds based lending rate (MCLR_/base rate/ benchmark prime lending rate (BPLR) shall continue till repayment or renewal, as the case may be. Provided that floating rate term loans sanctioned to borrowers who, in terms of extant guidelines, are eligible to prepay a floating rate loan without pre-payment charges, shall be eligible for switchover to the external benchmark without any charges/fees, except reasonable administrative/ legal costs. The final rate charged to this category of borrowers, post switchover to the external benchmark, shall be the same as the rate charged for a new loan of the same category, type, tenor and amount, at the time of origination of the loan.” 
     
    According to RBI, "In order to ensure transparency, standardisation, and ease of understanding of loan products by borrowers, a bank must adopt uniform external benchmarks within a loan category; in other words, the adoption of multiple benchmarks by the same bank is not allowed within a loan category.” 
     
    The RBI has been trying for many years to ensure that its interest rate cuts get transmitted to the borrowers. For this, it has experimented with the benchmark prime lending rate, the base rate and finally MCLR which was based on the cost structure of the bank which was not audited by RBI for compliance. 
     
    Each of these experiments failed because not only were these formulae flawed but RBI allowed banks to dictate terms to borrowers, no matter what its policy stated. 
     
    Because of this attitude of the banking regulator, Moneylife Foundation has been relentlessly campaigning against arbitrary and opaque bank policies with respect to floating rate loans. We have estimated that banks have gained tens of thousands of crores of rupees in higher interest by not reducing rates in sync with policy rates.
     
    Borrowers, who have taken loans on a floating rate basis, suffer an immediate increase when interest rates are hiked by RBI but do not get much relief when rates go down. This makes a mockery of the very concept of ‘floating’ rates. 
     
    An RBI-owned internal study had highlighted how banks deviated in an ad hoc manner from the specified methodologies for calculating the base rate and the MCLR, to either inflate the base rate or prevent the base rate from falling in line with the cost of funds. 
     
    It says, “Banks have been quite slow in migrating their existing customers to the MCLR regime. Most of the base rate customers are retail or small and medium enterprise (SME) borrowers. Hence, the banking sector’s weak pass-through to the base rate is turning out to be deleterious to the retail and SME borrowers in an easy monetary cycle.” 
     
    Moneylife Foundation wrote to Dr Urjit Patel, the then governor of RBI, requesting him to direct banks to calculate the excess interest they have charged (through arbitrary and ad hoc calculations of base rate or MCLR) and refund the money to borrowers, especially retail borrowers and SMEs. (See Excess Interest Charged by Banks under Base Rate and MCLR Regime) Since RBI refused to act on it, we then had to file a public interest litigation in the Supreme Court.
     
    The Supreme Court, on 8 October 2018 directed RBI to respond within six weeks to representations made by Moneylife Foundation on the unfair practice of banks regarding floating loans.
     
    RBI did not comply with this order but in December 2018, it suggested that banks should use an external benchmark such as 91-day treasury bill yield or 182-days treasury bill yield.
     
    Dr Patel had said, "The spread over the benchmark rate—to be decided wholly at the banks’ discretion at the inception of the loan—should remain unchanged through the life of the loan, unless the borrower’s credit assessment undergoes a substantial change and as agreed upon in the loan contract.” This, in other words, means that, with the spread remaining fixed, banks will have to adjust interest rates as per the changes in external benchmark. 
     
    While the RBI policy was supposed to turn operational in April 2019, Dr Patel resigned and the new governor Shaktikanta Das decided to postpone it, as banks were opposed to it.
     
    However, it seems that the political pressure to transmit lower rates was too much and RBI had to fall in line.  
     
    So, if you have a floating rate loan, ask your banker to move you from MCLR to the new system. 
     
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    COMMENTS

    VIVEK SHAH

    2 months ago

    I have an education loan with HDFC CREDILA will this RBI directive be applicable to us ?

    REPLY

    DEBASHIS BASU

    In Reply to VIVEK SHAH 2 months ago

    No. This is applicable to only banks, not NBFCs

    VIVEK SHAH

    In Reply to DEBASHIS BASU 2 months ago

    Thank you Sir. Nonetheless your good work would still be a lot of help for millions. Maybe some day it would be applicable to nbfcs too. My regards to the Moneylife team for their relentless efforts.

    Bipin Kochar

    2 months ago

    Home loans are typically taken for a 15-20 year duration - hence, the rate of these loans should be linked to an interest rate of a similar duration.
    To avoid an asset-liability mismatch, banks should be providing these from deposits of a similar duration.

    Today, most of the long term savings are in Government Saving schemes like NSC, PPF, EPF - with EPF accounting for bulk of the long term savings -the rates that banks offer for long term deposits have to be competitive with these Government Savings Schemes - hence the EPF interest rate is an ideal benchmark to link home loan rates to.

    The repo rate is a short term interest rate and is subject to sharp fluctuations - which could lead to EMIs ballooning to a level in a short duration where it is very difficult for the millions of home loan customers to service.

    It is hence extremely concerning that RBI is idiotically forcing banks to link long term to highly volatile benchmarks vs a more robust benchmark like the EPF rate which will reduce the risk for home loan customers.

    REPLY

    DEBASHIS BASU

    In Reply to Bipin Kochar 2 months ago

    True but banks have brought it upon themselves by cheating borrowers for 20 years from bank rate to BPLR to MCLR.

    B. Yerram Raju

    2 months ago

    Congratulations. But it is sad that political pressure alone should yield result. Had RBI done on its own, how graceful it could have been for the sector! But the taste of the pudding is in the eating. I have my own fears as the technology required for such transmission may pose issues within the short time. Borrowers will continue to be at the receiving end unless transparency is ensured.

    Harish

    2 months ago

    Good Work Moneylife!

    PETER SALAZAR

    2 months ago

    Thanks Very Much Money Life for the contribution to this important step by the RBI . Hope the squeeze on the usurious charges by the banks will translate into more careful evaluation of the creditworthiness of large borrowers in future,

    Shib

    2 months ago

    Will NBFCs like HDFC (not the bank) follow this and will their customers get the benefit too?

    B. KRISHNAN

    2 months ago

    This was long overdue. Successive RBI governors have gloated over this issue (an issue of the common man) on the grounds that Banks profits should be protected, while turning a blind eye to the Banks profligacy in lending to fraudulent entrepreneurs.

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