BBN Bureau
MCLR-linked loans accounted for 53.1 pc in Dec, 2021
MUMBAI/April 08-2022: The proportion of floating rate loans linked to the external benchmarks rose further to 39.2 per cent in December 2021 from 28.6 per cent in March 2021 and 9.3 per cent in March 2020, which would strengthen transmission further going forward, according to the Monetary Polcicy Report (MPC) released on Friday by RBI.
The external benchmarks were introduced by the Reserve Bank of India (RBI) in April 2016 following a long period of lending that were only based on benchmarks structured by the respective lenders themselves.
The external benchmarks available for basing the floating rate loans are RBI’s policy repo rate, Government of India (GoI) 3-months treasury bill (T-Bill) yield and 6-months T-Bill yield published by Financial Benchmarks India Pvt Ltd (FBIL).
The share of marginal cost of funds-based lending rate (MCLR)-linked loans has come down, although these still have the largest share at 53.1 per cent in December 2021.
“The sustained decline in the MCLRs and the periodic resetting of such loans at lower rates benefitted existing borrowers and led to a softening of weighted average lending rates (WALR) on outstanding loans,” RBI noted.
The reduction in lending rates was seen across most sectors in 2021-22, adding to the softening recorded in 2020-21.
As per the RBI data, the decline was the sharpest for agricultural loans, infrastructure, large industry and other personal loans in the case of fresh rupee loans.
And in the case of outstanding rupee loans, the decline was largest in the case of infrastructure, other personal loans, vehicle and micro, small and medium enterprises (MSMEs) loans.
In February 2022, lending rates (outstanding loans) were the lowest in respect of housing loans, reflecting the lower risk of default and the availability of collaterals.
It’s natural that other personal loans, i.e., loans other than housing, vehicle and educational loans are mostly unsecured and hence they have higher credit risk and spreads.
In the case of fresh loans, large industry got loans at the lowest rates, followed by infrastructure and housing loans.
Lending rates eased in H2
The accommodative stance of monetary policy, ample surplus liquidity, and the floating rate loans linked to MCLR getting reset lower, have contributed to some further easing in commercial bank’s lending rates in the second half of 2021-22 (H1, FY22)
“In response to the 250 basis points (bps) reduction in the policy repo rate since February 2019 (when the current easing phase started), the weighted average lending rates (WALRs) on fresh and outstanding rupee loans have declined by 213 bps and 143 bps, respectively.
