SBI Cuts Lending Rates by 10 bps, Loans to Get Cheaper

The State Bank of India (SBI), India’s largest public sector bank, recently announced that it has lowered its MCLR i.e. marginal cost of lending rates by 10 basis points across all tenors. The new rates are effective from 10 October 2019. This means SBI’s one-year MCLR has come down to 8.05% per annum from 8.15% per annum. This is the sixth cut in MCLR and it also means that home loans would become cheaper for borrowers. This rate revision comes days after the Reserve Bank of India (RBI) lowered the repo rate by 25 basis points.

SBI issued a statement saying, ‘’In view of the festival season and extending benefit to customers across all segments, SBI has reduced its MCLR by 10 bps across all tenors.’’

MCLR refers to the minimum interest rate below which the banks cannot lend, except in some cases allowed by the RBI. MCLR rates are dependent on a bank’s own cost of funds. So, if an existing home loan is linked to the MCLR rate of SBI, the latest cut may not bring down its EMIs immediately. MCLR-based loans generally have a one-year reset clause. In the case of new borrowers, the SBI now also offers repo-rate linked home loan schemes. This means the loan rates will get adjusted as and when RBI will revise its benchmark rates. The State Bank of India charges 265 basis points as spread over the RBI’s repo rate (currently at 5.15%) to calculate its external benchmark-based lending rate. The bank also charges a premium to keep its margins intact for an effective home loan rate.

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