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SBI cuts home loan rates effective today, but will your EMI come down?

The country's largest lender slashed interest rates on housing loans up to Rs 30 lakh by 10 basis points, bringing it down to the 8.60-8.90% range, but existing home loan customers may have to wait awhile to see an impact because of the reset date factor

twitter-logo BusinessToday.In   New Delhi     Last Updated: April 10, 2019  | 12:21 IST
SBI cuts home loan rates effective today, but will your EMI come down?
SBI has cut lending rates by a marginal 5 basis points (bps) across all tenors effective from today.

SBI is the latest in a long line of banks that have reduced their marginal cost of funds based lending rates (MCLR) in recent times. On Tuesday, the country's largest public sector lender cut lending rates by a marginal 5 basis points (bps) across all tenors effective from today, thereby reducing the cost of all loans linked to the MCLR. The revised one-year MCLR stands at 8.50% down from 8.55% earlier, SBI said in a statement.

Passing on the benefits of the lowered rates, the bank also slashed interest rates on housing loans up to Rs 30 lakh by 10 bps, bringing down the rate to the 8.60-8.90% range. This means that the EMI over a 15-year tenure now starts at Rs 29,718 instead of Rs 29,895 (at 8.7% interest). That may not seem like much but the total reduction in your interest payable over the loan term is close to Rs 32,000.

However, existing home loan customers may have to wait awhile to see an impact on their EMIs because of the reset date factor. 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.

Nonetheless, the RBI's decision to slash the repo rate is likely to give a breather to the battered real estate sector as fence-sitting buyers, who have been waiting for a rate cut, may take the plunge now. Last week, the six-member Monetary Policy Committee (MPC), headed by RBI Governor Shaktikanta Das, voted to reduce the repo rate by 25 basis points (bps) to 6 per cent from 6.25 per cent earlier. This is the second consequent rate cut. Repo rate is the interest rate at which the RBI lends money to banks.

One more factor could have a bearing on banks' decision to pass on the benefits of the lower repo rate to the end consumers. In its Statement on Development and Regulatory Policies dated December 6, 2018, the RBI had proposed that all new floating rate personal or retail loans (housing, auto, etc.) extended by banks from April 1, 2019, be benchmarked to the external benchmarks, like the Repo Rate. But the regulator deferred this decision at the last MPC meet.

"Taking into account the feedback received during discussions held with stakeholders on issues such as (i) management of interest rate risk by banks from fixed interest rate linked liabilities against floating interest rate linked assets and the related difficulties, and (ii) the lead time required for IT system upgradation, it has been decided to hold further consultations with stakeholders and work out an effective mechanism for transmission of rates," the RBI said in a statement.

Also read: SBI cuts MCLR by 5 bps across tenors: Home loans to get cheaper from April 10

Also read: RBI repo rate cut: How much will your home loan EMIs reduce?

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