Country's largest lender State Bank of India (SBI) has reduced its MCLR by 5 bps across all tenures with 1 Year rate down from 8.45% p.a. to 8.40% p.a. As a result, Interest rates on all loans linked to MCLR stand reduced by 5 bps with effect from 10th July 2019. This is the third rate cut in the current financial year since 1 April. With today’s MCLR cut, the reduction in the Home Loan Rates since April 10, 2019 is 20 bps.

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Loans like personal loans, home loans, credit card loans, loans against property, auto loans will become cheaper for borrowers now. Significantly, the State Bank of India was also the first bank to link the interest rates to RBIs repo rate, in order to pass on the same rate to end consumers. 

Interesting, in a notification, SBI also highlighted about home loan interest rates. The bank said, "With today’s MCLR cut, the reduction in the Home Loan Rates since April 10, 2019 is 20 bps."

SBI has already linked its home loan interest rates with policy repo rate with effect from July 01, 2019. Any change in policy rate will have a direct impact on home loan rates, and thus on home buyers EMI as well. 

Currently, SBI has become the real winner when it comes to offering cheapest home loan interest rates to both women and men either be salaried or non-salaried. The 1-year MCLR at SBI is set at 8.45%. For home loan upto Rs 30 lakh, interest rate imposed on salaried men and women ranges from 8.60% - 8.70% and 8.55% - 8.65% respectively. Similarly, for non-salaried men and women home loan interest rate up to Rs 30 lakh  is between 8.75% - 8.85% and 8.70% - 8.80% respectively. 

While for home loan between Rs 30 lakhs to Rs 75 lakhs, a salaried men and women have to pay interest rate between 8.85% - 8.95% and 8.80% - 8.95%. As for non-salaried ones, the rates vary from 8.95% to 9.10%. In case if home loan is taken above Rs 75 lakh, then salaried men and women’s interest rate is between 8.90% to 9.05%, while for non-salaried ones 9.05% to 9.25%. 

It can be said that, SBI’s home loans are much cheaper for female borrowers. Also, it needs to be noted that, SBI has linked its home loan product with policy repo rate, and further if the latter goes down the former will also witness similar reduction. 

Here are the key things to know about SBI's decision to reduce MCLR by 5 bps:

1. Rate cut effective 10th July 2019 across all the tenors
2. One Year MCLR is now 8.40%
3. 3rd rate cut during the current fiscal
4. Since April 10, Home Loan Rates have been reduced by 20 bps

What is MCLR?

The MCLR is the latest one to be developed by RBI which replaced the previous base rate of deciding lending rates. Effective since April 01, 2016, MCLR was supposed to bring transparency in the methodology adopted by a bank for calculating interest rates on home loan, car loan, personal loan, etc. 

Banks decide on their interest rate by adding components to MCLR. These are - marginal cost of funds, Cash Reserve Ratio, operating costs and tenor premium. 

Notably, the marginal cost of fund is calculated on factors like interest rate offered by banks on various deposits such as savings, fixed deposits, current account, foreign currency deposit or short-term interest rate. Also they can be derived from the repo rate on which the RBI lends money to commercial banks. 

Marginal cost of borrowings accounts 92% of marginal cost of fund, while remaining 8% is considered from return on network. Simply put, MCLR is highly decided on marginal cost of funds which takes into account deposits and repo rates. 

Every month, MCLR is reviewed by banks after cumulating the components and published every month on a specific date. Generally it is revealed in the beginning of a month. 

For your knowledge, banks have the liberty to specify dates of interest reset on their floating rate loans. Simply put, a bank can offer loans with a reset dates linked with either to loan sanction date or MCLR review date. However, the periodicity to reset shall be a year or less.