Dena Bank lowers lending rate by 0.05%s to 9.40%

Mumbai: State-owned Dena Bank Tuesday joined its larger rivals by lowering its marginal cost of funding-based lending rate (MCLR) by 5 bps to 9.40 percent.

Under the revised rates, the one-year MCLR has been fixed at 9.40 percent while the most competitive overnight MCLR is 9.15 percent, the Ahmedabad-based bank said in a statement. The revised rates will be applicable from today.

The announcement follows similar moves by State Bank and ICICI Bank that lowered their MCLR by 0.15 percent and 0.10 percent, respectively, over the weekend. This series of action signalled a dip in borrowing costs ahead of the busy credit season.

The announcements come after repeated displeasure shown by RBI for not passing on the benefit of its policy rate cuts to borrowers, which is expected to give a boost to the sagging economic growth.

They also come ahead of the crucial "busy season" in the second half of the fiscal that sees a spurt in loan demand.

Industrial credit growth in the first half of the year was a historic low of just 0.30 percent.

The MCLR was introduced this April as a transparent and effective alternative by RBI after banks showed reluctance in passing on the benefits of the rate cuts to borrowers.

Even after the MCLR introduction, RBI continues to be concerned on the issue of transmission which was flagged by Governor Urjit Patel at his maiden policy review last month.

Banks are given a set formula to compute the MCLR based on cost of funds and are required to review it on a monthly basis, when the calls on the new rate structures are taken.

"I agree that transmission through bank lending has been less than anyone of us would have liked to," Patel had told reporters.

"We are hoping that over the next quarter or two, keeping in mind the government has also reduced the small savings rates, MCLR itself will lead to better transmission."

Since January 2015, RBI has reduced repo rate by 175 basis points, including the recent one, but banks have reduced their base rates only by 60 basis points.