Home, auto loans cheapest in 6 years as SBI, PNB, ICICI cut lending rates by up to 0.9%, other banks follow

Banks have announced sharp cuts to their lending rates after a recent surge in deposits, raising hopes that lower borrowing costs will help spark credit growth in Asia`s third-largest economy.

Lenders' move will act as a "booster dose" for the economy and propel consumption as lending may pick up significantly.

ICICI Bank on Monday reduced benchmark lending rate by 0.7 percent across various maturities.

The bank has reduced marginal cost of funds based lending rate (MCLR) by 0.7 percent to 8.20 percent for 1-year tenure, ICICI Bank said in a statement.

A day after Prime Minister Narendra Modi exhorted banks to prioritise lending towards poor and lower middle class, SBI, the country`s biggest lender by assets, said on Sunday it had cut its so-called marginal cost of funds-based lending rates (MCLR) by 90 basis points, while unveiling new products for mortgage loans, one of the fastest-growing areas.

This is the lowest benchmark rate for SBI in six years, which means the bank will offer its lowest rates since 2011. SBI in total has cut its benchmark lending rate by 200 basis points since January 2015.

Several other lenders including Punjab National Bank, Union Bank of India, Kotak Mahindra Bank and Dena Bank also cut their lending rates by 45-90 basis points across tenures.

Last week, SBI subsidiary State Bank of Travancore also cut rates by up to 0.3 percent, while IDBI Bank cut its lending rate by up to 0.6 percent across various loan tenors.

Prime Minister Narendra Modi in his address to the nation on Saturday had appealed to the banks flush with currency to move beyond their traditional priorities, and keep the poor, the lower middle class, and the middle class at the focus of their activities.

Banks have received an estimated Rs 14.9 trillion (USD 219.30 billion) in old 500, and 1,000 rupees notes from depositors since Prime Minister Narendra Modi`s government on Nov 8 unexpectedly banned the bank notes in a bid to fight counterfeiting and bring unaccounted cash to the economy.

That had raised expectations banks would have room to cut lending rates, which is seen as vital to increase credit growth and spark a revival in private investments.

Industry chamber CII said that the rate cuts will play a key role in the process of economic strengthening in the medium term.

With Agency Inputs