SBI loans to become cheaper - Check how and why

State Bank of India (SBI), India's largest public-sector lender, on Friday, announced that it has decreased the lending rates. The decision by SBI will make loans cheaper. The MCLR cut will make home and other retail loans cheaper for the existing borrowers. According to the announcement, SBI slashed its marginal-cost based lending rates (MCLR) by 5 basis points (bps) across all tenors. This is SBI's 7th consecutive cut in borrowing rates in FY 2019-20.

The cut in lending rates will be effect from November 10, as per SBI. And, after the rate cut, SBI's 1 year MCLR will come down to 8% per annum. This will be with effect from November 10, 2019.

Earlier, on Oct 9 too, SBI had lowered its marginal cost of funds based lending rate (MCLR) by 10 basis points across all tenors to 8.05 per cent from October 10.

"In view of the festival season and to extend the benefit to customers across all segments, the SBI has reduced its MCLR by 10 bps across all tenors," the country's largest state lender said in a statement.

What is MCLR?

MCLR refers to the minimum interest rate of a bank below which it cannot lend, except in some cases allowed by the RBI. MCLR rates are based on a bank's own cost of funds.

The one-year MCLR is the benchmark against which most retail loans such as home loan and auto loan are priced.

MCLR is closely linked to the bank's actual deposit rates. So, if your home loan is linked to one-year MCLR, your interest rate will get reset only after the completion of one year.