State Bank of India cuts home loan interest rates to lowest

Posted on:04 Nov 2016 09:37:42
State Bank of India cuts home loan interest rates to lowest
04 November 2016 Current Affairs: State Bank of India (SBI) has cut home loan rates to a 9.1% -the lowest in six years -as part of a festive scheme. The rate cut comes on the back of a general interest rate reduction last week when SBI reduced its benchmark rates by 15 basis points .

In terms of the festival scheme, home loans for women (or loans with women as co-borrowers) will be available for 20bps above the benchmark rate, which translates into 9.1%. For all other borrowers, home loans will be available at 9.15%. The festival rates will be available for loans sanctioned in November and December 2016 and where disbursement is taking place in a month. 

SBI's cheapest home loans are now 20bps lower than ICICI Bank and HDFC's cheapest home loan rate of 9.3%.  SBI's aggressive cut in home loan rates comes at a time when the banking sector is seeing an extremely sluggish growth in loans. 

The corporate loan books of most banks have shrunk as companies are shifting to the bond market. Despite negative growth in corporate loans, overall bank credit has grown by 1.6% in FY17 (as of mid-October) due to home loans which are growing at 18%. 

The latest round of rate cut will be available only for new borrowers as the bank has done this by revising the spread over the benchmark. SBI's benchmark rate is the one-year Marginal Cost of Lending Rate (MCLR), which has been effective from April 2016. Earlier, loans were priced in relation to the older benchmark -the base rate. The MCLR is revised every month for new borrowers. But once a customer avails of a loan, he is locked into the MCLR for a year. 

While lower home loan rates reduce SBI's margins, they help the bank in deploying resources which are piling up as bank deposits are growing at a faster clip compared to bank loans. 

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