The country’s largest lender State Bank of India or SBI has announced the details of its new repo rate-linked home loan scheme. According to new RBI rules, banks have to link all new floating rate loan products (home, auto, retail) to external benchmarks from 1st October, 2019. There has been a shift from earlier regime of marginal cost of lending rate (MCLR) where every bank’s MCLR differs from each other and it was difficult to understand spreads charged by banks. Now the banks have to link all the floating rate products to a single external benchmark which will make comparison of interest rate easier for a borrower.
Important points to note about SBI’s new repo-linked home loan scheme:
- SBI was earlier charging 8.30% floating interest rate under the MCLR regime for salaried class borrowers for home loans up to Rs 30 lakh. Under the repo linked rate, the SBI has pegged the interest rate at 8.20% per annum. There is difference of only 10 basis points between earlier MCLR and repo linked regime.
- For SBI home loans between Rs 30 lakh and Rs 75 lakh, 40 basis points of premium will be charged. This means the effective rate will be 8.45%. This is applicable to salaried class borrowers.
- For home loans from SBI above Rs 75 lakh for salaried class, the premium over external benchmark-based lending rate will be 50 basis points. This means the effective rate will be 8.55%.
- SBI has also specified that a premium of 15 bps will be added for non-salaried customers and a concession of 5 bps will be available to women borrowers.
- If the loan to value (LTV) ratio is above 80 percent but less than or equal to 90 percent, a premium of 10 bps will be added. It is applicable for home loans up to Rs 30 lakh. Loan to value ratio is the proportion of the property value that a lender can finance through a loan.
- A premium of 10 bps will be added to the card rate for borrowers who fall under RG or risk grade (4 to 6).
One of the best things under the external benchmark system is that a borrower can compare the spread a bank is charging. For SBI, the spread is kept at 265 basis points over the RBI’s repo rate. There is additional premium of 15 basis points. As a result, effective interest rate comes out to be 8.20 per cent for under Rs 30 lakh home loan. If two banks have different external benchmarks it would be quite difficult to compare the spreads and rates The existing floating rate term loans sanctioned to borrowers who are eligible to prepay a floating rate loan without pre-payment charges will be eligible for switch to external benchmark without any charges/fees, except reasonable administrative/legal costs, the RBI said. Post switchover to external benchmark, the final rate charged to this category of borrowers shall be same as the rate charged for a new loan of the same category, type, tenor and amount.