State Bank of India (SBI), the country’s largest bank, recently launched repo-linked home loans. Yes, you read it right. It is to be noted that SBI became the first bank in India to offer a home loan product in which the interest rate is linked to the Reserve Bank's repo rate. However, after SBI, other banks including PNB and Bank of Baroda launched the repo-linked home loans. In near future, many other banks are expected to offer the repo-linked home loan products.
From today onwards, interest rate under SBI's repo-linked home loan products has gone down to 8.05 per cent. Earlier, it was 8.4 per cent. It is worth mentioning here that the reduction in SBI's repo-linked home loan products comes after RBI reduced repo rate by 35 basis points in the month of July this year. Well, the good news is that this rate will be applicable to all existing and new repo-rate linked loan customers of SBI.
In a statement, SBI Chairman Rajnish Kumar said, “The bank's new offer on repo rate-linked home loan is getting good response from customers.”
The RBI, which has lowered the repo rate by 110 basis points so far this year, had urged commercial banks to transmit the reduction in key interest rates to their customers. Adhering to it, SBI has cut its benchmark lending rate by 35 basis points since April 10.
SBI introduced repo-linked home loans in July this year and as of July 1, 2019, its repo-linked lending rate stood at 8 per cent.
Importantly, the lending rate of SBI's repo-linked home loan is based on the bank's repo rate lending rate (RLLR). However, RLLR is linked to RBI's repo rate. SBI's RLLR is fixed 225 bps over RBI's policy repo rate (currently at 5.4%). As soon as the RBI changes the repo rate, SBI's RLLR is changed automatically and thus the effective home loan rate.
In case of SBI's repo-linked product, the RLLR will change from the first day of the following month of RBI's rate revision. So from September 1, SBI's RLLR will fall to 7.65 per cent. SBI then charges a spread, depending on the borrower's credit score for home loans up to Rs 75 lakh.
So, from September 1, for borrowers with good credit score, SBI will charge 8.05 per cent. The spread increases to RLLR + 95 bps or RLLR +110 bps in case of home loans above Rs 75 lakh.
Interestingly, SBI waived processing fees on car loans in August. In a statement, the country’s largest bank had said it is offering interest rate starting from 8.70 per cent to customers opting for car loans. Also, the bank has announced revised interest rates for customers availing personal and education loans.