SBI trims lending rate by 5 bps; home loans to be cheaper

State Bank of India (SBI), the country’s biggest lender, on Tuesday announced a token 5 basis point reduction in its lending rate across all tenors, with another state-run lender Indian Overseas Bank (IOB) following it up with a similar 5 bps rate reduction.

The minor reduction in lending rates comes nearly a week after the Reserve Bank of India (RBI) cut its policy repo rate by 25 basis points.
State Bank of India on Tuesday said the 5 basis points reduction in lending rates will apply to loans of all tenors, making loans in segments such as home and vehicles cheaper.
Further, to make housing loans more affordable, the bank has reduced the interest rate by 10 basis points on loans up to Rs30 lakh.
Interest rate for housing loans below Rs30 lakh will range from 8.60 per cent to 8.90 per cent (against the existing rates of 8.70 per cent to 9 per cent), the bank stated in a release.
SBI said the reduction in home loan rates are effective 10 April.
With SBI’s benchmark one-year MCLR coming down from 8.55 per cent to 8.50 per cent, there will be 5 bps cut in the marginal cost of funds based lending rate across all tenors, SBI said.
All rupee loans sanctioned and credit limits renewed with effect from 1 April 2016, are priced by banks with reference to the MCLR, which is the internal benchmark for such purposes.
SBI had, early last month, said that in order to address concerns regarding rigidities in the balance sheet structure and quick transmission of changes in RBI’s policy rates, it will link Savings Bank (SB) deposits and short term loans to RBI’s repo rate with effect from 1 May.
Accordingly, from 1 may, while SB deposits with balances up to Rs1 lakh (comprising almost 95 per cent of the SB account holders) will earn 3.50 per cent interest, those with balances above this threshold will earn 3.25 per cent (2.75 per cent below the repo rate, which is currently at 6 per cent).
The central bank cut its policy repo rate (the interest rate at which it provides liquidity to banks to overcome short-term mismatches) on April 4 from 6.25 per cent to 6 per cent.
SBI said the benefit of reduction in repo rate will get passed on in its entirety to its Short Term Loan -- Cash Credit (CC)/Over Draft (OD) -- customers with effect from 1 May.
All CC/OD customers with limits above Rs1 lakh will be charged a minimum (floor) interest rate of 8.25 per cent (repo rate plus a spread of 2.25 per cent) against the current 8.50 per cent. The risk premiums over and above this floor rate would be based on the risk profile of the borrower, as is the current practice.
Following in the footsteps of SBI, the Indian Overseas Bank has also pared its MCLR by 5 bps in tenors of one year and above with effect from 10 April. The Chennai-headquartered public sector bank’s one-year MCLR will be 8.65 per cent against 8.70 per cent now.
RBI governor Shaktikanta Das last week said the central bank is conscious of the fact that there has to be effective transmission of rates.
“After the last meeting I had with public and private sector banks, they have marginally, up to about 10 basis points, cut their MCLR; but more needs to be done,” he said.