Mumbai, Aug. 1: Retail borrowers will finally have something to cheer about after the State Bank of India (SBI) today slashed its interest rates on home loans by as much as 60 basis points.
The rate cut will make housing loans from the country's largest commercial bank cheaper than those offered by its rivals.
The decision was taken at a meeting of its asset-liability committee (Alco). The SBI also brought down the interest rate on auto loans by 50 basis points.
At the Alco meeting which lasted till late evening, the SBI decided to bring down the interest rate on housing loans up to Rs 30 lakh to 10.25 per cent from 10.50 per cent � a cut of 25 basis points.
Similarly, home loans above Rs 30 lakh and up to Rs 75 lakh will carry an interest rate of 10.40 per cent against 10.75 per cent earlier.
Home loans above Rs 75 lakh will carry an interest rate of 10.40 per cent against 11 per cent earlier.
However, the SBI did not say anything about reducing its base rate. That means the benefit of the rate cuts won't be available to the existing borrowers.
The base rate is the minimum benchmark rate which banks must charge their customers. In the case of the SBI, it stands at 10 per cent.
The SBI's decision to trim its rates came only a day after the Reserve Bank of India (RBI) surprised bankers and markets by cutting the statutory liquidity ratio (SLR) by 100 basis points to 23 per cent at its first quarter review of the monetary policy.
SLR is the portion of deposits that banks must invest in government bonds. The reduction in SLR will release about Rs 60,000 crore, which banks can use to finance corporate and retail borrowers.
Soon after the monetary policy, SBI chairman Pratip Chaudhuri had indicated that there could be a cut in retail lending rates because of the reduction. He had said that instead of investing the money in government securities that would have yielded a return of around 8 per cent, the PSU bank could lend it and earn over 10 per cent.
Observers said the SBI move was part of its strategy to ratchet up its market share in the retail loan segment. The country's largest bank had shaken up the home loan market in 2009 when it had announced a scheme under which the interest rate was frozen at 8 per cent in the first year.
It now remains to be seen if other banks and finance companies follow the country's largest bank in bringing down their interest rates. Incidentally, the Reserve Bank of India has barred banks from levying foreclosure charges, or pre-payment penalties, on floating rate home loans. Thus, there is a possibility that a few borrowers of other banks and finance companies may shift to the SBI to take advantage of the lower rates.
The SBI also brought down the interest rate on car loans to 10.75 per cent from 11.25 per cent. Officials at the bank said that because of the reduction, the equated monthly instalments on a seven-year car loan would come down to Rs 1,699 per month from Rs 1,725 per month.
In auto loans, too, the bank has been trying to ramp up its presence in the market that is dominated by heavyweights such as HDFC Bank.
Back in April, the bank had brought down interest rate on these loans to 11.25 per cent, making it the cheapest in the industry.