India's largest commercial lender State Bank of India announced yet another reduction in lending rates on Monday. The lending rates were cut by 10 basis points across tenors and the new rates came into effect today. One year MCLR (marginal cost of funds-based lending rate), to which all the retail lending rates are pegged, now stands at 8.15 per cent from 8.25 per cent earlier.
In the bargain, SBI's home loan rates for up to Rs 75 lakh, now range between 8.25 per cent and 8.80 per cent, depending the profile of the borrower. Previously, the interest rate range was 8.35-8.90 per cent. The lender attributed the falling interest rate scenario and surplus liquidity for realigning its interest rates.
This means that the EMI for a housing loan of Rs 30 lakh over a 15-year tenure now starts at Rs 29,104 instead of Rs 29,279 (at 8.35 per cent interest). That may not seem like much but the total reduction in your interest payable over the loan term is close to Rs 31,500.
However, existing home loan customers may have to wait awhile to see an impact on their EMIs because of the reset clause. The interest rate of the loan for the borrower is changed only on the reset period, which is typically one year." So your loan rate will go down only after 12 months from the reset date. So if your loan has a rest clause of September, you will have to wait till next September to enjoy the lower interest rate.
Home loans are set to get far more cheaper next month. Last week, the Reserve Bank of India mandatorily asked banks to link their loan products to key repo rates or external benchmarks. The change will come into effect from October 1.
With this development, banks will now be forced to pass on the benefit of multiple repo rate cuts in the past year to the consumers. The MPC has reduced the repo rate by 2.6 per cent since 2014, but the banks have reduced their lending rates by as little as 1.1 per cent during this period.