India’s biggest bank State Bank of India or SBI today lowered lending rates, making loans cheaper. SBI cut its MCLR or marginal cost of fund based lending rate by 5 basis points across all tenors, its 7th consecutive cut in borrowing rates in FY 2019-20. After the rate cut, SBI’s one-year MCLR will come down to 8% per annum, with effect from November 10, 2019.
The one-year MCLR is the benchmark against which most retail loans such as home loan and auto loan are priced. HDFC Bank had earlier this week cut marginal-cost based lending rate (MCLR) for various tenors by up to 10 basis points (bps).
MCLR is closely linked to the bank’s actual deposit rates. If your home loan is linked to one-year MCLR, your interest rate will get reset only after the completion of one year.
SBI today also announced a revision in fixed deposit rates or FD rates by 15 basis points for deposits for one year to less than two years maturity.
SBI also slashed bulk deposit rates by 30-75 bps across tenors. The bank cited adequate liquidity in the system for lowering FD rates.
The Reserve Bank of India so far this year cut repo rate by a cumulative 135 basis points. Many banks have linked their retail lending rates to an external benchmark and even lowered the marginal cost of funds-based lending rate (MCLR).
SBI, for example, has a repo rate-linked home loan product under which it charges a spread of 265 basis points over the RBI’s repo rate (currently at 5.4%) to calculate its external benchmark-based lending rate, which comes to 8.05%. SBI also charges a premium for calculating effective home loan rate for customers.