Marginal cost lending rate (MCLR) is the benchmark lending rate with which banks in India price their loans. The new lending benchmark system was introduced in April last year replacing the base rate system.
Prime Minister Modi, in his New Year’s speech addressed the nation and urged banks to reduce their interest rates so it becomes more affordable to the middle class and the lower class and underprivileged to afford a home.
Following SBI’s suit for reducing the home loan rates, Punjab National Bank cut their MCLR rate to 70 basis points Or 0.7%. The loan rate is now 8.45% which was 9.15% earlier.
IDBI bank, Union bank of India have also reduced their lending loan rates. ICICI has reduced the MCLR rates by 45 basis points and their interest rates have reduced from 9.1% to 8.65%. Citibank has reduced the loan rate from 9.50% to 8.80%.
Since demonetization, banks are flooded with deposits. According to the data report from Reserve bank of India, the deposits grew from 11.9% on November 11 to 15.9% on December 9. This has led to reduction in the lending loan rates.
Reduction in interest rates result in shorter loan repayment period. The loan of 25 years is now reduced to 20-21 year. The banks adjust the repayment tenure and not the EMI instalment amount.
With government’s effort to encourage more affordable housing projects it is expected that this will urge more developers to launch the same. It is indeed good news for the potential buyers.