After announcement of demonetization by our prime minister SHRI Narendra Modi on 8th of November, 2016, banks in India have garnered huge chunk of deposits. Impact of CRR and other statutory ratio of Reserve bank of India have been assumed useless after this huge inflow of deposits. Earlier these banks were running out of liquidity and capital infusion was only way out there for infusion of liquidity and maintenance of statuary requirements of regulators. After demonetization India’s largest bank SBI has received Rs. 1.27 trillion deposits as per report published in MINT.
On the surge of huge deposit and to curb out excess liquidity, banks are continuously slashing interest rate of Deposits. Reduction in deposit rates has brought down cost of funds for the banks and they are maintaining sufficient margin and transfer price for the deposit being received. Hence forth, it is quite significant that banks may soon reduce their Interest rate of loan and advances to match their asset with liabilities.
Further, after announcement by prime minister that 5 laces crore have been deposited with banks and it will bring down rate of interest on loan and advances. India’s largest lender SBI has slashed its MCLR by 0.90 BPS by bringing down it to 8.00%. it is a new year gift to its customers by slashing interest rate on loan.
Now bank may probably offer its existing base rate customer the benefit of rate cut. Bank may offer a switch over option from base rate to MCLR to its existing base rate customers by paying a nominal fee. Bank has decided to club the switch over fee with EMI so that customers do not feel the pinch upfront. If an existing customer with base rate wants to switch over without changing the loan spread then it does not require any fee.
Since MCLR is being reviewed every month and liquidity management is prime goal for banks right now, it is recommended to switch to MCLR regime from existing base rate to have benefit of demonetization.
0 comments: