Days after the 35 bps repo rate cut by the Reserve Bank of India (RBI), state-run lenders Allahabad Bank and UCO Bank, on August 9, 2019, slashed their marginal cost of funds-based lending rate (MCLR) across all tenors. Allahabad Bank said it has reduced its MCLR by 15 to 20 basis points (bps) for different tenors, effective from August 14, 2019, while another public sector lender UCO Bank announced that it has cut the same by 15 bps, across all tenors.
“The benchmark one-year MCLR has been reduced by 15 bps to 8.5 per cent, as against 8.65 per cent earlier,” UCO Bank said in a statement. The one-year MCLR is the rate based on which the retail loans such as home, car and personal advances are linked, the lender said. UCO Bank is planning to link the rate of interest with the RBI’s repo rates, to pass on the benefit to customers.
Allahabad Bank also said it has decided to reduce the rate of interest on retail term deposits by 10 bps, across all terms over one year. Allahabad Bank’s MD and CEO SS Mallikarjuna Rao, said the bank will be exploring the development of products of both, assets and liabilities, linked with an external benchmark, to transmit the benefits of rate cut to its customers, shortly.
RBI slashes interest rate by 0.35%, making it the fourth cut in a row
The RBI, on August 7, 2019, cut interest rates for the fourth time in a row, reducing the repo rate by 0.35%, to bring it to 5.40%
August 7, 2019: The Reserve Bank of India (RBI), on August 7, 2019, cut the key interest rate for the fourth consecutive time, as it reduced the repo rate by 35 basis points (0.35%) to 5.40%, to boost the slowing economy. The six-member monetary policy committee (MPC) also maintained the accommodative stance on the monetary policy. In the earlier three policies, it reduced the repo rate by 25 basis points, each time.
The fourth consecutive rate cut, is expected to lower equated monthly instalments (EMIs) for home and auto buyers and borrowing costs for corporates. The 35 basis points (bps) cut in repo is unusual, as the RBI has been changing the interest rate by 25 or 50 bps, in the past. When asked why the RBI opted for a 35-basis point rate cut, RBI governor Shaktikanta Das said it is not unprecedented and added that a 25-basis point reduction was inadequate, while 50 bps was excessive. So, the MPC took a balanced callm he said.
Noting that inflation was currently projected to remain within the target, over a 12-month horizon, the MPC said since the last (June 2019) policy, domestic economic activity continued to be weak, with the global slowdown and escalating trade tensions posed downside risks. It said that even as the past rate cuts were being gradually transmitted to the real economy, the benign inflation outlook provided headroom for policy action, to close the negative output gap.
The RBI also revised real GDP growth for 2019-20 downwards, to 6.9% from 7% in the June policy. CPI inflation is projected at 3.1% for the second quarter of FY20 and 3.5%-3.7% for second half of FY20, with risks evenly balanced, it said.
Bankers agree to take steps, to pass on RBI’s rate cuts
The Finance Ministry has said that banks have agreed to take steps to review lending rates, as they have not ‘commensurately’ transmitted the benefits of reductions in the policy rate by the RBI, to borrowers
August 6, 2019: Since December 2018, the monetary policy has been eased substantially by the Reserve Bank of India (RBI), with policy rates being cut by 75 basis points (bps) and the policy outlook being changed to ‘accommodative’. “Banks need to commensurately transmit the rate cut benefits in lending. In the meeting, banks agreed to take steps as per RBI guidelines, to review their lending rates,” said an official release, on August 5, 2019. The release was issued after a meeting between finance minister Nirmala Sitharaman and heads of public sector banks (PSBs), as well as private lenders, including HDFC Bank, ICICI Bank, Axis Bank, Kotak Mahindra Bank and CitiBank.
Financial services secretary Rajiv Kumar said a range of issues connecting to credit growth, micro, small and medium enterprises (MSMEs), automobiles, timely transmission of rate cuts, digitisation and service tax-related issues, were discussed at length. “The idea is to take stock of everything and spur credit growth, especially in the automobile sector, in the agriculture sector, in the MSMEs and also look at the ‘co-origination’ with the NBFCs and HFCs, where the banks have the credit availability, so that they can join hands together and lending reach to the last mile,” Kumar said.
Touching upon the issue of home buyers discussed in the meeting, the minister said the Supreme Court has already come out with its verdict in the case of one of the big realty firms. However, in case of another, the ministry had consultations with various stakeholders. “On another (developer), we have had a group of ministers meeting with all the respective authorities, whether it was the Noida Authority, or the Yamuna Expressway Authority, together with representatives of Uttar Pradesh, with the Union Minister of Urban Development Hardeep Singh Puri and the concerned secretaries – banking, revenue and company affairs,” she said. Sitharaman said there have been extensive meetings and the government hopes to move forward in that direction.
On funding to MSME and non-banking financial company (NBFC) sectors, she said the meeting discussed about ways to improve lending to these businesses. The minister said there is a complex matrix of governance-related, solvency-related and liquidity-related issues. RBI deputy governor NS Vishwanathan, who also attended the meeting, said the banking system has adequate and durable liquidity currently.
Sitharaman talked about issues related to the increase in public shareholding in listed companies from 25 per cent to 30 per cent as well as levy of surcharge on super riches. She said market regulator SEBI has already started consultations with various stakeholders about the increase in public shareholding to 30% in listed entities. About levy of surcharge on foreign portfolio investors (FPIs) as part of tax on super riches announced in the Budget 2019-20, she said, “I did mention that there are FPIs who are going to tell me something about it and I am quite open to hearing out what they want to tell me. And towards that, I have not just left it at that.” She said Department of Economic Affairs (DEA) Secretary Atanu Chakraborty has clearly culled out time to meet with the FPIs so that the ministry can have their views.
RBI cuts interest rates for the third time this year, to boost growth
Amid concerns over a slowing economy, the Reserve Bank of India has cut interest rates for the third time this year, lowering the repo rate by 0.25%, to 5.75%
June 6, 2019: Slashing the benchmark lending rates for the third time this year, the Reserve Bank of India (RBI) cut its repo rate by 0.25% on June 6, 2019 and said its future monetary policy stance will be more accommodative. The repo rate, at which the central bank lends to the system, will come down to 5.75% after the cut.
Amid concerns of a slowdown in the economy, the central bank lowered its gross domestic product (GDP) forecast to 7% for the current fiscal from 7.2% projected earlier. While marginally increasing its inflation projection to 3%-3.1% for the first half of the fiscal year 2019-20, which is within the comfort range of 2%-6% set by the government, the RBI cut the GDP growth targets sharply to 7% for FY20, on the back of a weak global scenario and dip in private consumption.
“The MPC (monetary policy committee) notes that growth impulses have weakened significantly. A sharp slowdown in investment activity, along with a continuing moderation in private consumption growth, is a matter of concern,” read the policy resolution.