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Mary Joseph made post

Why has SBI cut loan rates and will it mean that other banks will also cut rates on home loans?

Answer
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sara Kunju answered.
8 months ago


State Bank of India lowered lending rates, making loans cheaper. Of course, this will only apply to floating rate loans and for the retail customers, this will specifically apply to home loans. SBI cut its marginal cost of fund based lending rate (MCLR) by 5 basis points (0.05%) across all tenors. This is the seventh cut in this fiscal year by SBI. However, if you are home loan borrower and if your home loan is linked to 1-year MCLR, your interest rate will be reset only after completion of 1 year.

With the move to external benchmarking by banks from October 01st, the deposit rates have also fallen in tandem with the lending rates. In fact, SBI also announced a revision in fixed deposit rates or FD rates by 15 basis points 1-2 year deposits and bulk deposits by 30-75 bps across the board. Most of the large banks have been responding proactively to the RBI call to improve the transmission after the RBI has already cut the rates by 135 bps this year.

SBI’s, repo rate-linked home loan product charges a spread of 265 basis points over the bank rate (currently at 5.4%). This takes the benchmark based lending rate to 8.05%. Regarding other banks, HDFC Bank has already cut MCLR by 10 bps and other banks are also expected to follow suit. However, this will also be accompanied by cuts in deposit rates too.