State Bank of India is first off-the-block with the announcement of reduction in its lending rates following the interest rate reduction announced by RBI. But this announcement is related to the MCLR (Marginal Cost of Funds based Lending Rate), the bank determined rates applicable on some of its loan products. The reduction is only to the extent of 10 basis points against 25 basis points cut in the repo rate declared by the regulator. With this, the effective rate of lending by SBI, with effect from October 10, will be 8.05% against 8.15% earlier for a typical 1-year tenor. Similar 0.10% reduction can be seen across all tenors uniformly.
It has to be clarified that these reduced rates will apply to only the new loans being disbursed from October 1. Existing borrowers won’t be affected by this cut in the interest rate. SBI follows a review of interest on a yearly basis on loans which it has disbursed on MCLR rates. Since the MCLR itself is determined based on the cost of funds raised by the bank, it will do its own weighted average calculations on the precise cost of funds over the previous year and make the adjustments where deemed appropriate. This should not be confused with the other transparent regime of linking the interest rate on borrowings to the repo rate or some other publicly available rate of interest.
If you have taken a home loan from SBI based on MCLR rates of interest, then it may be too early for you to pull out your calculator to check how much your EMIs will be down by. There will be no change now.
If you plan to borrow from SBI, you will have the option of both the fixed MCLR rate of interest and the repo rate. The latter comes with the risk that if the RBI were to increase the repo rate for some reason, your EMI amount will also proportionately go up.