SBI has reduced its marginal cost of funds-based lending rate across all tenors by 90 basis points — from 8.9 per cent to 8 per cent.
Public lender State Bank of India (SBI) has reduced interest rates on home loans of up to Rs 30 lakh by 25 basis points (bps) for new borrowers — to 8.35 per cent from 8.60 per cent. For loans between Rs 30 lakh to Rs 75 lakh, a 10 basis points reduction will be implimented by the bank.
The new rates will be effective from May 9.
Earlier this year
Perhaps the year started off well for homebuyers. SBI had slashed its marginal cost of funds-based lending rate (MCLR) across all tenors by 90 basis points or 0.9 per cent — from 8.9 per cent to 8 per cent, the sharpest of the lot on January 1, 2017. Thereafter, Punjab National Bank (PNB) cut its one-year MCLR rate by 70 basis points or 0.7 per cent to 8.45 per cent from the earlier 9.15 per cent. Apart from SBI and PNB, Union Bank of India, Bank of Baroda, United Bank of India and IDBI Bank, too, had slashed their lending rates. While the former had implemented a reduction of 65 basis points to 8.65 per cent, the latter had announced a reduction of 15 basis points to 9.15 per cent early this year.
Moreover, private lender, ICICI Bank, had also reduced rates by 45 basis points — from 9.1 per cent to 8.65 per cent while Citi India had become the latest lender to lower interest rates on home loans. The global lender reduced its home loan rate to 8.80 per cent from 9.50 per cent with effect from January 9, 2017. With the latest revision in SBI's home loan rates, other banks too may follow suit.
Demonetisation and thereafter
In what could be termed as the "sweet uses" of the "adversity" imposed by Prime Minister Narendra Modi's ban on Rs 500 and Rs 1,000 currency notes, banks in the country were flooded with deposits. Data by the Reserve Bank of India showed that deposits had grown from 11.7 per cent as on November 11 to 15.9 per cent as on December 9. This had prompted many of the banks to reduce lending rates.
A reduction of such a scale as this would result in loan repayment tenures getting much shorter. For instance, a loan-repayment tenure of 25 years may now come down to about 20-21 years. It has to be noted that banks generally adjust the repayment tenure and not the EMI (equated monthly instalment) amount while implementing interest rates cuts.
For beginners, MCLR is the benchmark lending rate at which banks in India price their loans. The new lending benchmark came into effect from April 1 last year, and has replaced the base rate system.
In his address to the nation on the New Year’s Eve, Modi urged banks to make underprivileged, lower-middle and middle-class their area of focus.
"I want to appeal to banks to focus on the middle class and the underprivileged. Banks should work for the benefit of the poor, and not let this opportunity go (referring the rise in deposits)," Modi said during his 45-minute speech on New Year's eve.
In his speech, the PM also announced that for loans of up to Rs 9 lakh, a four per cent interest relief will be provided while for loans of up to Rs 12 lakh, a three per cent interest relief will be given.
