Two Kolkata-based banks, United Bank of India (UBI) and Allahabad Bank, have decided to offer select loan products linked to the repo rates, to pass on the benefit of the RBI’s rate cut to their customers, bank officials said on August 30, 2019.
UBI sources said, the bank would offer housing and car loan products with repo linked lending rate (RLLR). For housing loans, the new RLLR will vary from 8.15% to 8.30%, based on loan-to-value (LTV) ratio and 8.70% to 8.85% for car loan borrowers. The bank also said that it will continue to offer home and car loan products linked to marginal cost of funds-based lending rate (MCLR), giving customers the option to choose.
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Allahabad Bank would link housing loans up to Rs 75 lakhs to the RLLR, as well as Mudra loans under ‘Sishu’, ‘Kishore’ and ‘Tarun’ categories.
Savings bank deposits of Rs 40 lakhs and more, would also be linked to RLLR, the bank said. However, the lender would also continue to offer loans linked to the MCLR.
Federal Bank to link savings deposit rate to external benchmarks
The south-based Federal Bank on August 31, 2019 announced that it will link its savings deposit rate to external benchmarks, becoming the first private sector lender to initiate such a move
September 2, 2019: The south-based Federal Bank on August 31, 2019, announced that it will link its savings deposit rate to external benchmarks, becoming the first private sector lender to initiate such a move. This move comes in the context of The Reserve Bank of India cajoling banks to move their interest rates to external benchmarks like its repo rate, at which it lends to the system, for the faster transmission of its policy actions.
The Federal Bank said that from September 1, 2019, its savings deposits up to Rs 2 lakh will earn interest in tandem with the repo rate. At present levels, deposits of up to Rs 1 lakh will earn an interest of 3.50 per cent, while the same of over Rs 1 lakh, but under Rs 2 lakh will earn 3.25 per cent, an official statement said. The repo rate, which has been reduced by 1.10 per cent in 2019 to boost growth, stands at 5.40 per cent at present.
It can be noted that re-pricing of the deposit rates is generally considered to be the first step towards the adoption of the same on the lending side. The private sector lenders have been so far apprehensive about adopting an external benchmark for pricing their loans. The third-largest lender in the space, Axis Bank, has also said the external benchmark is not the only way to achieve policy transmission and opined that a shift holds more relevance to corporate borrowers which get repriced soon rather than the retail ones
