MCLR effect: Upto 160 basis points may fall in loan rates

Making monetary transmission faster, the new regime for pricing loans from April one is expected to reduce lending rates by 80-160 basis points.

It would also lead to small negative impact on net interest margins.

According to broking firm Prabhudas Lilladher's Research note the marginal cost based pricing of loans rates (MCLR) would be much lower than existing base rates.

For example, for State Bank of India, likely MCLR would be 8.26 per cent as against base rate of 9.3 per cent, forAxis Bank it would be 8.26 per cent as against 9.5 per cent being current base rate. Two public sector lenders -Bank of India and Bank of Baroda - could see their lending rates dipping to 8.15 per cent and 8.08 per cent, respectively, it said.

Banks will have the flexibility to tinker with the tenor premium which would likely offset any NIM compression.

Rating agency ICRA said the new norms hold the potential to improve the efficiency of monetary policy transmission for new borrowings.

The benefit (in a declining interest rate scenario) or the dent (in the rising interest rate scenario) would be restricted to new borrowers immediately. For existing borrowers (with floating rate liabilities) effect would be with a lag of upto one year.