Have you been scouting for the best offers on home loan for your dream home? In a big relief to customers, the country's largest lender State Bank of India (SBI) has reduced lending rate on home loan to 8.30%. With this reduction, SBI's offering in the home loan segment has become the lowest in the market. On November 1, the bank lowered its one-year MCLR by 5 basis points to 7.95 per cent against 8 per cent earlier. Home loans lending rates are pegged over and above one-year MCLR rate. While for the salaried men the spread stands at 40 basis points, women borrowers have to pay 35 basis points over and above MCLR for home loan.
The bank has reduced auto loan rates too. The lending rate now stands reduced to 9.2 per cent from 9.25 per cent earlier after the cut in MCLR. The women loan borrowers can avail the same at 9.15 per cent due to a lower spread on MCLR applicable to them. The rates cut on loans have come within weeks of Rajnish Kumar taking charge at the helm for a term of three years.
However, there is complete silence from other banks on this. ICICI Bank has a MCLR rate of 8.20 per cent for one year which was last reduced in January 2017. Another private sector bank, Axis Bank has also reduced its MCLR to 8.25 per cent in January this year. Bank of India (BoI) tinkered with its MCLR in September this year, when it reduced its rate from 8.40 per cent to 8.30 per cent. According to experts, other banks will be forced to reduce MCLR rate because of the reduction in incremental cost of borrowing.
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.
MCLR became the new benchmark lending rate for new borrowers across all floating loans since April 1, 2016. However, the recent cut in MCLR by SBI has come after a gap of 10 months.
Aimed at enabling better transmission of policy rates by banks, the new benchmark has failed to meet its objective. Lenders have been passing on full reduction in policy rates via it. 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.
The central bank tried to address this concern be setting up an internal group for suggesting replacement of MCLR with an external benchmark to determine the rates on floating rate loans with effect from April 1, next year. The internal study group suggested three new alternative benchmarks
However, it must be mentioned that total outstanding on mortgages in the banking system stood at Rs 9.08 lakh crore as on September 29. The y-o-y growth figure at the end of September 2016 was 18%, with outstanding housing loans in the banking system at Rs 8.06 lakh crore.