SBI sets lending rates based on marginal cost of funds to improve transmission of policy cuts

State Bank of India (SBI), the nation’s top lender by assets, on Thursday set lending rates under new rules that are aimed at improving transmission of policy rate cuts and also making bank loans more competitive. [caption id=“attachment_2705374” align=“alignleft” width=“380”] Reuters[/caption] Bankers have said they do not expect any significant impact on margins from the new lending rate structure, which is based on marginal cost of funds. All local currency loans effective April 1 are required to be priced based on the new rules. Currently, most banks decide lending rates based on average cost of funds. SBI will charge an annual interest of 9.2 percent for loans of one-year tenor, 9.3 percent for two-year tenor, and 9.35 percent for three-year tenor. That compares with the 9.3 percent base lending rate of the bank. Loans of overnight and one-month tenor will have interest rate of 8.95 percent and 9.05 percent, respectively, the bank said in a document posted on its website on Thursday. Ratings agency India Ratings and Research said in a note it expected as much as Rs 1.2 lakh crore rupees ($18 billion) worth of corporate borrowing to flow back to the banking sector from the commercial paper market as rates become competitive with the implementation of the marginal cost of funds-based lending rate. Reuters