Bank of Maharashtra has cut its marginal cost of funds-based lending rate (MCLR) on loans, making it an outlier in a rising interest rate scenario.

While other banks have been raising rates, Bank of Maharashtra has reduced its MCLR by 20-35 basis points across tenors. This means that while customers of other banks will have to pay higher interest rates on their loans, Bank of Maharashtra will bring down the loan price for its borrowers.

So, how this is possible? Bank of Maharashtra is sitting on excess government bonds of Rs 15,000 crore, which is in its investment book. “We want to push this excess liquidity to our loan book,” Bank of Maharashtra managing director and CEO AS Rajeev told Indianbankingnews.com.

The margins of the Pune-headquartered bank will also not be impacted. “It will not hurt our margins. Our operating expense has come down while revenue has gone up. With the yields on the ten-year benchmark government bond coming down by 20 basis points, our credit cost has also come down. The benchmark bond is currently in the range of 7.34%. The credit-deposit ratio is at 72%. We want to further improve it to 75%,” Rajeev said.

The new MCLR rates have come into effect from 11 July.

About 45% of the bank’s loans, amounting to Rs 56,000 crore, are linked to the MCLR while the rest is linked to the external benchmarks like the repo rate. These will get repriced at the lower rates when the reset is due.

For the three-month tenor, the MCLR cut is the maximum as it falls by 35 basis points to 7.20% from 7.55% earlier. The MCLR on six months and one year tenor have been pared by 20 basis points each to 7.40% (7.60% earlier) and 7.50 % (7.70%), respectively.

The state-owned bank has also reduced the MCLR on overnight and one-month tenors by 25 basis points each to 6.90% (7.15%) and 7% (7.25%), respectively. 

MCLR is the minimum lending rate below which banks are not allowed to lend. It is derived based on the components such as the marginal cost of funds, operating costs, cash reserve ratio (CRR) and tenure premium.

The bank has taken measures to push down costs, allowing it to pass on the benefits to its customers.

“We have reduced six lakh square feet of rented area for our branches and added 300 branches in the last two and a half years. Each of these branches are bringing in business upwards of Rs 50 crore,” Rajeev said. 

The bank’s head office, the imposing Lokmangal building, is partly run on solar. This takes care of 40% of the head office’s energy needs. Even in other locations, the bank is switching to solar energy.

The bank is posting an almost 28% growth in gross advances, much higher than the 10% seen in the industry. For the full-fiscal, the bank expects credit to grow in the region of 18-20%, which is higher than the 12-13% projected by analysts for the sector.

“Being a small bank, we have the advantage of the base being small. Our loan book is around Rs 1.40 lakh crore. We are expecting to have a credit growth of 20% and deposit growth of 12% in the current financial year,” Rajeev said.