Home mortgage player HDFC, however, is less competitive since the lender is asking customers to cough for 9.55-10.05%
While home loans at State Bank of India (SBI) now cost 9.45%, customers might find it cheaper to borrow from ICICI Bank which is charging 9.4%. Home mortgage player HDFC, however, is less competitive since the lender is asking customers to cough for 9.55-10.05%.
However, it could be some time before the Reserve Bank of India’s objective of monetary transmission is fully achieved.
While since the beginning of CY14, RBI has cut its benchmark repo rate by 150 bps, the rate of interest for home loan borrowers of ICICI Bank, even after it adopted the MCLR, has reduced by just 85 bps.
To achieve greater monetary transmission and ensure that lending rates are sensitive to policy rates, the Reserve Bank of India (RBI) had released the guidelines for computing MCLR in December, 2015, and had mandated banks to adopt them as the benchmark for lending instead of base rates from April 1, 2016.
“Our first estimate from the 26 largest banks in the system, accounting for about 83% of activity, has been that since the last week of March, the median overnight MCLR is down by 50 bps from the base rate and is down 25 bps across all tenors,” RBI governor Raghuram Rajan had said on Tuesday after announcing the first bi-monthly monetary policy for the new financial year.
What will be interesting to watch, however, is if banks increase the spread they charge over their MCLRs to avoid passing on the benefits of them being lower than the base rates. Bank of Baroda, for example, has announced a one-year MCLR of 9.3%, which is 35 bps lower than its base rate of 9.65%.
So, although for its existing home loan borrowers, the rate of interest will continue to be 9.65%, it remains to be seen if and when the bank revises its home loan rates, whether or not it will add a spread over the MCLR to avoid passing on the entire benefit to its new borrowers.