The country‚Äôs top banker State Bank of India has again cut its lending rate making it more attractive for borrowers to avail loans from the bank. The quantum of cut is 25 basis points, from 8.05% to 7.8%. This new rate will be effective January 1, 2020. With this reduction, interest rate for existing home loan customers as well as MSME borrowers who have availed loans linked to External Benchmark Based Rate would come down by 25 bps.
New home buyers will now get loans at an interest rate starting from 7.90% p.a. (previously at 8.15% p.a.).
This is in line with the bank‚Äôs commitment to follow the Reserve Bank‚Äôs directive that banks start lending on interest rates linked to one of the external benchmarks. Though there are multiple choices as far as the benchmark is concerned, once a bank chooses one benchmark, all its loan products will have to be tied to that only.
In the case of SBI, it has chosen the Repo rate as the benchmark. This will mean that those borrowers of SBI who have opted for the interest rate on their borrowings be linked to the external benchmark will be paying interest at the new rate from next month till SBI makes the next announcement. The bank has said the rate applicable on the home loans will be 7.9%, from the New Year.
Repo rate is the terminology used to denote the rate at which the RBI lends money to the banks and this rate keeps changing as announced by the banking regulator from time to time. State Bank of India had made it known at time itself that it opts for the Repo rate as the external floating rate to which its loan products will be benchmarked.
As mentioned, all loan products will follow the same pattern and borrowers in different categories including the MSMEs will be able to gain the benefit due to this rate cut.
It was in September, earlier this year, that RBI had told banks to bring in more transparency in their lending rates and choose one of the floating rates and peg their loans to that rate.