The State Bank of India (SBI) on Wednesday announced lowering its marginal cost of funds based lending rate (MCLR) by 10 basis points across all tenors to 8.05 per cent from October 10. The MCLR cut will make home and other retail loans cheaper for the existing borrowers.
The bank’s one-year MCLR has been brought down from 8.15 per cent per annum to 8.05 per cent per annum. This is the sixth cut in MCLR in FY 2019-20 and it comes days after the Reserve Bank of India (RBI) lowered the repo rate by 25 basis points.
“In view of the festival season and to extend the benefit to customers across all segments, the SBI has reduced its MCLR by 10 bps across all tenors,” the country’s largest state lender said in a statement.
MCLR refers to the minimum interest rate of a bank below which it cannot lend, except in some cases allowed by the RBI. MCLR rates are based on a bank’s own cost of funds. So if an existing home loan is linked to the SBI’s MCLR rate, the latest cut may not bring down its EMIs immediately. MCLR-based loans generally have a one-year reset clause.
To new borrowers, the SBI now also offers a repo-rate linked home loan scheme. Under this scheme, the loan rate gets adjusted as and when the RBI revises its benchmark rate.
The SBI charges a spread of 265 basis points over the RBI’s repo rate (currently at 5.15 per cent) to calculate its external benchmark-based lending rate. The bank also charges a premium for effective home loan rate to keep its margins intact.