SBI's repo-linked loans to have 33-year tenure

New Delhi: India’s largest lender, State Bank of India (SBI), is likely to offer new home loan borrowers the option of repo rate-linked loans from July 1. The new product will reportedly have a relatively higher EMI load in the beginning so that the burden comes down with age.

A borrower has to repay at least 3 per cent of the principal amount every payer. The maximum repayment tenure for the loan would be 33 years. A two-year moratorium on repayment may be provided for under-construction buildings.

The bank has set a minimum annual income threshold of Rs 6 lakh for borrowing under the new scheme, aligning it with the Pradhan Mantri Awas Yojna (PMAY), where the household income threshold for Middle Income Group-1 starts at Rs 6 lakh.

SBI has a retail home loan portfolio of more than Rs 4 lakh crore as of March 31, 2019.

“The proposed scheme of SBI is to link repo rate with home loan and it will be implemented by the bank from July 1. The scheme is meant for those borrowers whose annual income was Rs 6 lakh or more,” said Sanjeev Naryani, Chief General Manager-Real Estate Housing Business Unit, SBI.

“The home loan rates under the proposed scheme will now be linked to repo rates, in which the interest rate will change when the repo rate is changed by the Reserve Bank of India,” he said.

“The idea behind the scheme is that when you grow old and your responsibilities increase, your EMI burden should come down. Under the scheme a minimum of 3 per cent of principal has to be paid every year along with the interest applied in the account,” Naryani added.

The strategic move of the bank is expected to address the issue of low transmission rate of RBI rate cuts by banks. Narayani said the rates will be reset on the first day of the following month of RBI policy.

SBI had already moved to a new interest rate regime on large savings account deposits as well as short-term loans from May 1 this year. In March, the lender had announced that it would link its interest rate on savings account with balance above Rs 1 lakh and short-term loans like overdraft and cash credit facility to RBI’s repo rate with effect from May 1.

“Earlier, the bank had linked its saving bank deposits, cash credit and overdraft rates (for the balances above Rs 1 lakh) with repo rate and the impact on the bank’s profitability has been positive,” Naryani said.

With this, the interest rates on large SBI savings account deposits, interest rate on some short-term loans and home loans will automatically change as and when the RBI changes its policy rate.

SBI’s domestic savings bank deposits were at Rs 10.64 lakh crore as of December 31, 2018.