State Bank of India (SBI), the countrys biggest mass-lender, on Friday began a new era of transparency in consumer loans by linking the pricing of its home-financing products to the central bank policy rate used for setting the broader cost of debt in the economy.Starting July 1, consumers would have the option to take SBI home loans pegged to the central bank repo rate, the lender said in a statement a day after the cost of funds was set at the lowest since 2010.
Fridays move follows the Mumbai-based banks March decision to link its savings bank rate and short-term lending rates to the repo.The bank will continue to offer home-loan products linked to the marginal cost of lending rate (MCLR), but customers can opt for a repo linked home loan rate, said PK Gupta, managing director in charge of retail banking at SBI."This is a different product.
It is linked to repo and at a larger tenure than the normal home loan.
The rate for a Rs 75-lakh home loan comes to 8.40%, compared with 8.55% on the existing home loan, Gupta said.
However, the tenure under the new product will be more and can go up to 35 years, compared with 30 years we offer now because customers have to pay a 3% outstanding amount plus interest every year.Currently, SBI offers home loans up to Rs 75 lakh to customers at 8.55%.
The new loan product now being offered will have a base spread of 2.25% above the 5.75% repo rate, meaning 8%.
The bank will also charge a 40 basis point spread over the rate, Gupta said.
One basis point is 0.01 percentage point.Existing borrowers can shift to repo rate-linked product by paying a 0.25% charge, Gupta said."We have already linked our overdraft and cash credit rates to the repo rate earlier this year and now we have introduced the home loan product.
As we have said earlier, we will gradually link our loan rates to the RBI rates for faster transmission," said SBI CFO Prashant Kumar.Transmission of interest rates has been an issue with the central bank as loans offered by high-street banks have not become cheaper as quickly as declines in the policy rate.
"It has been noticed in the past that it took four to six months for transmission.
But this time, transmission has been faster than that," central bank governor Shaktikanta Das told reporters Thursday after the policy decision.Das said banks have only reduced rates by 21 basis points of the 50-basis point reduction in policy rates, going by the weighted average lending rate reduction.