State Bank of India has reduced its Base Rate – an older lending benchmark – by 30 basis points to 8.65%. The bank has however not made any changes in its current benchmark – the marginal cost of lending rate (MCLR).
The reduction in the Base Rate will benefit those borrowers who had raised floating rate loans, including home loans, before April 2016. While a large number of home loan borrowers had refinanced their mortgages to take advantage of the lower rates offered under the MCLR regime, there are still close to half the older borrowers whose loans are linked to the Base Rate.
With this reduction, SBI’s base rate is lowest among lenders. The advantage for SBI is with this reduction its older borrowers now do not have the same incentive to get their loans refinanced from other borrowers.
For SBI it ranges from 7.70% for overnight borrowing to 8.10 for three years. The bank’s cheapest home loans are currently available at 8.35% and are linked to one-year MCLR.
There is a likelihood that the MCLR will also be replaced by an external benchmark similar to Libor in global markets. In October 2017 an RBI panel had suggested that banks link lending rates to an external benchmark to hasten policy transmission.
Source: ET Realty