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SBI cuts home loan, car loan rates by 5 basis points

State Bank of India (SBI) has slashed rates on its home and car loans. Following a cut in MCLR by 5 basis points, bank has reduced home loan interest rates to 8.30 per cent

In a relief to its customers, State Bank of India (SBI) has slashed rates on its home and car loans. Following a cut in MCLR by 5 basis points, bank has reduced home loan interest rates to 8.30 per cent per annum while rate on auto loan has been lowered to 9.20 per cent per annum. With this reduction, SBI's offering in the home loan segment has become the lowest in the market, claims bank. The new rates will be effective from November 01, 2017.

Bank charges a spread of 40 basis points on its MCLR for home loan. On the other hand, the salaried women borrowers have to pay 35 basis points over and above MCLR for home loan. One year MCLR rate stands at 7.95 per cent against 8 per cent earlier. For car loan customers, where spread on MCLR is 1.25 per cent, the lending rate now stands reduced to 9.2 per cent from 9.25 per cent earlier. The same is 9.15 per cent  for women loan borrowers due to a lower spread on MCLR applicable to them.

It must also be noted that SBI has reduced the rates within weeks of Rajnish Kumar taking charge at the helm for a term of three years.

Since April 1, 2016, banks started following marginal cost lending rate (MCLR) as the new benchmark lending rate for new borrowers across all floating loans. MCLR includes marginal cost of funds, negative carry due to CRR (cost that banks incur on keeping funds with the RBI as CRR), operating costs and tenure premium (costs arising from loan commitments with a longer tenor). The final lending rate charged to a customer includes spread to the MCLR.

SBI has changed MCLR rate after ten months. Despite a 25 basis points cut in August that reduced policy rate to 6 per cent from 6.25 per cent, banks didn't cut down MCLR.  

Recently, an internal group set up by the central bank had suggested replacing MCLR with an external benchmark to determine the rates on floating rate loans with effect from April 1, next year. The internal study group had observed that the MCLR-based rate system had failed to effectively transmit monetary policy changes.

The cut in the rates by SBI is expected to be followed by other banks too.