Published on: Nov 3, 2016 @ 10:17
State Bank Of India (SBI), the largest public sector lender has cut home loan rate to 9.1% per annum. SBI has reduced the home loan rate to the lowest level in six- year as part of a festive scheme. The news will bring cheers to many new home loan borrowers.
Under this scheme, the home loan rate for women or loans with women as co-borrowers has come down to 9.10 % per annum from existing 9.25 % and 9.15 % from existing rate of 9.30 % per annum up to Rs 75 lakh for all other borrowers respectively. These rates cut will be available to both new borrowers as well as those who wish to switch over their home loan to SBI as the bank has done this by revising the spread over the benchmark. With this reduction, SBI’s home loans are the cheapest in the market and will benefit a lot of new borrowers who are looking for budget homes.
This limited period festival rates will be valid for loans sanctioned in November and December 2016, and where disbursement is taking place in a month. Moreover, SBI has also waived off all processing fees as part of the festive season offer.
According to the Times Of India report, SBI MD Rajnish Kumar said, “The rate cut will bring down the equated monthly installment on a Rs 50-lakh loan by Rs 542 per month. Since March, the EMI has come down by over Rs 1,500.”
The latest rate cut comes after the SBI reduced its marginal cost of funds based lending rate (MCLR) by 15 basis points (bps) in the last week of October. SBI links new home loan interest rates to one-year MCLR, which has come down to 8.90% from 9.05%. In fact, all banks typically lend with a spread on the MCLR. Usually, the rates are 25-50 bps higher than the MCLR.
SBI has a spread on home loans at 20 bps for women and 25 bps for other individuals (100 bps = 1 % point). Hence, the interest rate on SBI’s home loans for these two groups would be 9.10% and 9.15% per annum, respectively.
MCLR is the new benchmark lending rate at which banks lend to new borrowers. The MCLR rates get revised every month. New home loans are either linked to 6-month or 1-year MCLRs. In fact, these loans come with a reset clause based on the tenure of the MCLR it is linked to. SBI’s benchmark rate is the one-year Marginal Cost of Lending Rate (MCLR), which has been effective from April 2016. Once a customer avails a loan, he is locked into the MCLR for a year.
The announcement of these rates cut has come after the Reserve Bank of India (RBI) cutting the repo rate by 25 bps in its monetary policy review in October. RBI governor Urjit Patel had then expressed his concerns about the benefits of earlier bank rates cut not getting passed to the borrowers.
Other banks are also transmitting the bank rates cut to retail lending rates. ICICI Bank Ltd, has also reduced its MCLR by 10 bps to 8.95%.
The current home loan rate cut by SBI comes at a time when there is a sluggish growth in loans in the banking sector. Moreover, SBI can increase its loan growth by grabbing more market share from other lenders by offering the lower rates. Experts say that it could increase the competitive pressure on other lenders to bring down their interest rates. It is also an indicator that the lending rates are set to fall further in the future.
Ajay Verma, founder and writer of TheHousingWorld, a real estate and mortgage news website. He has over fifteen years of rich experience in the above mentioned industries.