According to experts, the new category of home loans linked to repo rate may see quicker transmission.
Mumbai: The country's largest lender State Bank of India (SBI) on Friday announced introduction of repo rate-linked home loans from July 1. The development comes after the Reserve Bank of India (RBI) in its Monetary Policy statement of June 6 cut the policy rate (repo rate) by 25 basis points.
According to experts, the new category of home loans linked to repo rate may see quicker transmission. So if the RBI cuts interest rates, the borrowers with repo rate-linked home loans may get the benefit of lower rates however if the RBI was to raise interest rates, then lending rates on such loans will be revised upwards.
Currently loans are linked to marginal cost of funds based lending rate (MCLR) where the borrower does not get immediate benefit in the form of lower EMIs when a bank cuts lending rates but only when his EMI is reset after six or 12 months as per the contract with the bank.
SBI also announced slashing of effective repo-linked lending rate for cash credit/overdraft (CC/OD) customers effective July 1.
“The benefit of reduction in repo rate by 25 bps by RBI has been passed in its entirety to cash credit/overdraft customers (limits above Rs 1 lakh) banking with us, with effect from July 1, 2019. Now the effective Repo Linked Lending Rate (RLLR) for CC/ OD customers is 8 per cent,” the bank said.
For savings deposits above Rs one lakh, the new rate would be 3 per cent.
In another development, state-owned Bank of Maharashtra announced a reduction in the benchmark one-year MCLR by 0.10 per cent to 8.60 per cent with effect from June 7. The one-year MCLR is the benchmark against which most customer loans such as auto, personal and home loans are priced. Among other loan tenors, the overnight MCLR will attract an interest of 8.15 per cent, down by 0.05 per cent, while the three-month tenor rate has been slashed by an equal margin to 8.40 per cent.