Axis Bank cuts MCLR by 15 basis points to 8.95%

Axis Bank became the first bank to reduce its key lending rate after the Reserve Bank of India (RBI) reduced its repo rate by 25 basis points last week.

The country’s third largest private sector lender cut its marginal cost-based lending rate (MCLR), the benchmark for pricing loans, by 15 basis points across all tenors. Axis Bank also reduced the base rate by 5 basis points to 9.45 per cent from 9.50 per cent effective April 18. Commercial banks moved to the new loan pricing regime from April 1.

Axis Bank said the rate for new overnight loans would be 8.95 per cent against 9.1 per cent earlier. The reduced rates would come into effect from Monday. With this, its overnight MCLR is now on a par with those of State Bank of India and HDFC Bank. However, the overnight MCLR of ICICI Bank, another large lender, still was 9 per cent.

The one-year tenor is the most crucial for banks (it is not specific to Axis, it is a general statement for the industry) as more than 30 per cent of its deposits have maturity of around a year. The change in deposit rates for this bucket was likely to drive revisions in MCLR.

"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," Shikha Sharma, Managing Director & Chief Executive Officer, Axis Bank, said.

Reserve Bank of India prescribed banks to move to the MCLR system to improve transmission of monetary policy. Instead of one benchmark rate, banks would indicate atleast five benchmark rates varying according to tenures.However, it is likely that other banks may follow a wait and watch policy and tweak their MCLR rates at the end of the month. This is because the new MCLR rates were announced at the start of the month and as per norms banks need to revise their MCLR rates every month. As a result, some lenders may decide to do it later this month.

Apart from this, every cut in lending rates has to be preceded by a cut in deposit rates. Therefore, some banks may first decide to reduce their deposit rates before choosing to revise their lending rates.

The Bank has also reduced the base rate by 5 basis points to 9.45 per cent from existing 9.50 per cent, also effective from April 18, 2016.