Banks on Friday (December 30) started passing on the benefits of the huge deposit accretion due to demonetisation, with IDBI Bank cutting its lending rate by 15 basis points, even as the government told banks to ensure there was adequate cash available in rural areas and cash vending machines were replenished on time.
Friday was the last day for banks to receive old Rs 500 and Rs 1,000 currency notes, and the Reserve Bank of India’s estimates said that till December 10, Rs 12.4 lakh crore had been deposited in banks.
This explains why IDBI Bank reduced its marginal cost-based lending rate (MCLR) and also the old base rate by up to 15 basis points. The MCLR is revised every month by 5-10 basis points. A basis point is a hundredth of a percentage point.
State Bank of Tranvancore (SBT), a subsidiary of SBI, also slashed benchmark lending rate by up to 0.3%. The bank has reduced MCLR by 0.25% from 9.45% to 9.20% for 1-year tenure, SBT said in a statement.
Other banks, too, will have to lower their lending rates, mainly because of the huge deposit accretion due to demonetisation.However, lending rates could rise soon after money was withdrawn from accounts on normalisation of the cash crisis, a banker warned.
'It is all formula driven and we are not compelled by anyone. Our cost of funds has come down, therefore, we are lowering rates but when the cost of funds rises due to withdrawals, we may have to increase rates going by the formula. But that should take about six months,' a banker said.
