The State Bank of India (SBI) became the first bank in India to link its short-term loans and large savings deposits rates to the Reserve Bank of India's (RBI) repo rate earlier this year (2019). The Bank announced in June (2019) that it would introduce repo-linked home loans from July (2019).
The interest rates that fall under SBI's repo-linked home loan product will come down to 8.05% from Sunday (September 1), from 8.4% earlier. This was after the RBI slashed repo rate by 35 basis points last month. This new rate will apply to all existing and new repo-rate linked loan customers of the SBI.
Following suit, many banks comprising Punjab National Bank (PNB) and Bank of Baroda, came up with repo-linked home loan products and more banks are likely to follow suit with such products in near future.
The lending rate of SBI's repo-linked home loan connected with the bank's repo rate lending rate (RLLR), which is linked to RBI's repo rate. SBI's RLLR is set at 225 bps over RBI's policy repo rate which at present is 5.4%.
SBI's RLLR changes automatically when the RBI announces changes in the repo rate and hence the effective home loan rate. When it comes to SBI's repo-linked product, the RLLR will alter from the first day of the subsequent month of the apex bank's rate review.
Thus, from September 1, SBI's RLLR will drop to 7.65%. The bank also charges a spread, which depends on the borrower's credit score for home loans amounting to Rs 75 lakh. Therefore, from September 1, SBI will charge the borrowers with good credit score the rate of 8.05%.