State Bank of India (SBI) gave its customers a huge relief on Monday by sharply reducing lending rates, of all hues, by 25 to 75 basis points, which will have to be matched by other lenders at a time when margins are under pressure due to extended moratorium on loans and a ruling due on whether they can charge interest on the moratorium after all.
Nevertheless, it is a big relief for economically stressed retail customers who have seen salary cuts, or even job losses due to a possible contraction in the economic growth due to the Covid-19 crisis.
SBI, country’s largest lender on Monday passed on the entire 40 basis points policy-rate cut to its retail customers who had opted for loans linked to external benchmark linked lending rate (EBR), and repo-linked lending rate (RLLR).
All fresh retail loans given from October 1 are automatically under EBR and RLLR, while the bank had given an option to customers to shift their home and other retail loans, linked to MCLR or Base rate, to such external benchmark-linked rates. Earlier, effective April 1, SBI had reduced its EBR and RLLR by 75 basis points. Therefore, in less than three months, the rates on such loans fell by 115 basis points, exactly shadowing the repo rate cuts by the RBI.
SBI also reduced its marginal cost of funds-based lending rate (MCLR) for the 13th consecutive times by 25 basis points, and reduced its base rate by a sharp 75 basis points. Loans taken after April 1, 2016 are linked to MCLR, which is largely benchmarked with money market rates. Before MCLR, loans were given at Base rate.
Following the rate cuts, SBI’s one-year MCLR now stands at 7 per cent, and base rate at 7.40 per cent from June 10. From July 1, EBR will be at 6.65 per cent and RLLR at 6.25 per cent, SBI said in a statement.
“Consequently, EMIs on eligible home loan accounts linked to MCLR will get cheaper by approximately Rs. 421 and those linked to EBR/RLLR will get cheaper by around Rs. 660, for a 30 years loan of Rs. 25 lakh," SBI said.