Country’s largest lender State Bank of India (SBI) has announced the reduction in its MCLR by 5-10 basis points in the shorter tenors i.e. up to 3 months, with effect from 10th July 2020. However, the 1-year MCLR remains the same and hence this reduction will not impact home loan borrowers as such loans are linked to the 1-year MCLR of the bank. MCLR is Marginal Cost of Funds based Lending Rate and is an internal benchmark of the funds largely representing the cost of funds for a bank.
This is 14th consecutive reduction in the Bank’s MCLR. With this revision, SBI’s MCLR up to 3 Months tenor comes down to 6.65% p.a., which is on par with the EBLR of SBI.
SBI’s MCLR continues to be the lowest in the market. Earlier, the one-year MCLR had down to 7 per cent per annum from 7.25 per cent per annum with effect from June 10, 2020. The 1-year MCLR remains the same as in June but those borrowers who have the re-set date falling in July will find home loan interest rate see a fall compared to the rate 12 months back.
Illustratively, for someone paying 7.95 per cent in July 2019, a reduction of 0.70 per cent on paying 7.25 per cent in July 2020 means a saving of Rs 1400 per month on EMIs and saving nearly Rs 2.5 lakh on interest over the tenure of the loan. This is assuming Rs 35 lakh over a 15-year period.
All retail loans including home loans sanctioned by banks between April 1, 2016 and September 30, 2019 are linked to MCLR. However, banks are allowed to keep a Spread over and above the MCLR to determine the home loan rate of interest for the borrower.
Since October 1, 2019 banks are mostly sanctioning RLLR- Repo linked lending rate which in case of SBI is SBI’s EBR. Every time, RBI revises the repo rate, the revision in the interest rate is much quicker for the borrower compared to the loans linked to MCLR.
SBI’s EBR and RLLR comes down by 40 bps, as EBR is reduced to 6.65 per cent per annum from 7.05 per cent per annum w.e.f 01st July 2020.