State Bank of India (SBI) has announced that it will link the price of its home-financing products to the central bank’s repo rate. Starting July 1, consumers would have the option to take SBI home loans pegged to the central bank repo rate. The move is likely to reduce the interest cost on home loans, as the current repo rates are at its lowest since 2010.
As reported by The Economic Times, SBI will continue to offer MCLR-linked home-loan products linked, but customers can opt for a repo linked home loan rate, said PK Gupta, managing director in charge of retail banking at SBI. Existing borrowers can shift to repo rate-linked product by paying a 0.25% charge, Gupta said.
Currently, SBI offers home loans up to Rs 75 lakh to customers at 8.55%. The new loan product now being offered will have a base spread of 2.25% above the 5.75% repo rate, meaning 8%. The bank will also charge a 40 basis point spread over the rate, Gupta said. One basis point is 0.01 percentage point.
"We have already linked our overdraft and cash credit rates to the repo rate earlier this year and now we have introduced the home loan product. As we have said earlier, we will gradually link our loan rates to the RBI rates for faster transmission," said SBI CFO Prashant Kumar.
Transmission of interest rates has been an issue with the central bank as loans offered by high-street banks have not become cheaper as quickly as declines in the policy rate. "It has been noticed in the past that it took four to six months for transmission. But this time, transmission has been faster than that," central bank governor Shaktikanta Das told reporters Thursday after the policy decision.