After RBI's rate cut, SBI decides to link home loans to repo rate from this date - What borrowers should know

Following the Reserve Bank of India's recent decision to reduce the policy repo rate by 25 basis points to 5.75 per cent from 6.0 per cent with immediate effect, and the reverse repo rate to 5.50 per cent, the State Bank on Friday confirmed to introduce repo-linked home loans from July. The largest lender has linked its short-term loans and large savings deposits rates to the repo rate. 

The SBI statement said, "We will introduce repo-linked home loans from July 1." It also decided to reduce interest rate on cash credit account (CC) and overdraft (OD) customers with limits above Rs 1 lakh, in the wake of RBI's bi-monthly police statement reducing the repo rate by 25 basis points on Thursday.

SBI statement said, "The benefit of reduction in the repo rate by 25 bps has been passed in its entirety to our CC/OD customers (limits above Rs 1 lakh), with effect from July 1." 

The statement said that the effective repo-linked lending rate (RLLR) for CC/ OD customers is 8 percent now, adding that for savings deposits above Rs 1 lakh, the new rate would be 3 percent.

Earlier in March 2019, the SBI had linked all CC accounts and ODs with limits above Rs 1 lakh to the repo rate plus a spread of 2.25 percent. For amount above Rs 1 lakh, the largest lender had set its savings deposit rates to 2.75 percent below the repo rate.

Notably, the RBI monetary policy committee had unanimously decided to reduced repo rate by 25 basis points to 5.75 percent in the second bi-monthly policy, taking it down to a nine- year low. The RBI had cited sagging growth and to cushion the rising headwinds to the economy.

It was RBI's third consecutive repo rate cut with cumulative reduction of 75 basis points in 2019.