Axis Bank cuts interest rate on loans under the MCLR regime

axisAxis Bank, India’s third largest Private Sector bank reduced its lending rate by 15 bps across all tenors.

“This follows the reduction in Policy rates by RBI on April 5, 2016. The reduced MCLRs will take effect starting April 18thm” the bank said.

With this, Axis Bank’s marginal cost based lending rates (MCLR) are as follows:

New loans will be priced of the published internal benchmark MCLRS as mentioned above with effect from April 18, 2016, the bank said.

Axis Bank has also reduced the Base Rate by 5 basis points to 9.45% from existing 9.50%, also effective from April 18, 2016.

Announcing the MCLR cut, Shikha Sharma , MD & CEO, Axis Bank said “The MCLR mechanism is expected to ensure more effective transmission of changes in monetary policy rates for new borrowings. This is illustrated by our reduction in MCLRs as soon as market rates reduced.”

MLCR regime was announced by RBI late last year and came into effect this month.

Apart from helping improve the transmission of policy rates into the lending rates of banks, these measures are expected to improve transparency in the methodology followed by banks for determining interest rates on advances.

The guidelines are also expected to ensure availability of bank credit at interest rates which are fair to the borrowers as well as the banks. Further, marginal cost pricing of loans will help the banks become more competitive and enhance their long run value and contribution to economic growth.

All rupee loans sanctioned and credit limits renewed from April 1, 2016 are to be priced with reference to the Marginal Cost of Funds based Lending Rate (MCLR) which will be the internal benchmark for such purposes.

The MCLR will be a tenor linked internal benchmark.

Actual lending rates will be determined by adding the components of spread to the MCLR.
Banks will review and publish their MCLR of different maturities every month on a pre-announced date.

Banks may specify interest reset dates on their floating rate loans. They will have the option to offer loans with reset dates linked either to the date of sanction of the loan/credit limits or to the date of review of MCLR.

Earlier, banks were following different methodologies in computing their Base Rate – on the basis of average cost of funds, marginal cost of funds or blended cost of funds (liabilities).

Base Rates based on marginal cost of funds should be more sensitive to changes in the policy rates, the RBI had said.