Business Mantra News
- RBI announced its Bi-monthly Monetary Policy by lowering of Repo Rate by 0.25 bps.
- All have started expecting Banks to lower their MCLR resulting in the rate of interest on Home Loan, Retail Loans and other Loans to come down.
- RBI and even the Government of India want Banks to pass on the reduction effect to the borrowers immediately.
- Whereas Banks feel that Cost of Funds i.e. deposit rates are higher as compared to the loan rates, which means spread of Banks are low.
- If Deposit Rates are reduced, depositors especially the pensioners, depending upon the interest income are badly affected.
- Burden of NPAs is very high where charging of interest on NPA accounts is not allowed.
- The effect of NPAs and higher cost of funds are the two main factors, banks are not in a position to lower down Marginal Cost of Lending Rate (MCLR), besides various other reasons (Like keeping Cash Reserves and Investment in Government Securities to maintain statutory obligations), in-spite of willingness to reduce the MCLR.