Home, auto, personal loans get cheapest in 6 years as banks slash lending rate

New Delhi: Improvement in funds flow after demonetisation, major public sector banks in the country have set off a regime of low interest rates on consumer loans like home and auto loans.

State Bank of India and Union Bank of India cut lending rate by 0.9 percent, while PNB has slashed the lending rate by 0.7%. State Bank of Hyderabad and Kotak Mahindra bank also cut their Marginal Cost based Lending Rates (MCLR), while Dena Bank slashed lending rate by 0.75 percent.

Banks use the one-year benchmark for consumer loans like home, auto,l personal loans, and add a margin above the MCLR to decide the cost of retail loans. Post demonetisation, improvement in fund flows has helped the bank in setting the lowest benchmark rate for SBI in six years. In the nut shell, SBI will have the lowest lending rates since 2011. 

SBI in total has cut its benchmark lending rate by 200 basis points since January 2015. 

According to Cogencis, State Bank of Hyderabad cut its MCLR by 0.10 percent, while Kotak Mahindra Bank cut its MCLR based loan rates by 0.20 to 0.45 percent.

Prime Minister Narendra Modi on Saturday had asked banks to prioritize their lending towards the poor and middle class.

Banks have moved to MCLR as their new benchmark lending rate from June, replacing the base rate system for new borrowers. It is calculated on the marginal cost of borrowing and return on net worth for banks. It was introduced by RBI to ensure fair interest rates to borrowers as well as banks.