SBI cuts MCLR, RLLR and Base Rate: Here is how much borrowers will benefit

SBI has passed on the entire 40 bps Repo rate cut to its borrowers availing loans linked to EBR as well as Repo Linked Lending rate.

SBI Home Loan Rate: Country’s largest lender State Bank of India (SBI) has announced the reduction in its MCLR by 25 bps across all tenors. The one-year MCLR comes down to 7 per cent per annum from 7.25 per cent per annum with effect from June 10, 2020. This is the thirteenth consecutive reduction in bank’s MCLR.

The Bank also cuts its Base Rate by 75 bps, from 8.15 per cent per annum to 7.40 per cent per annum w.e.f 10th June 2020. Additionally, SBI passes on the entire 40 bps Repo rate cut (announced by RBI on 22nd May 2020) to its borrowers availing loans linked to External Benchmark linked lending rate (EBR) as well as Repo Linked Lending rate (RLLR). As such, SBI’s EBR & RLLR comes down by 40 bps, as EBR is reduced to 6.65 per cent per annum from 7.05 per cent per annumw.e.f 01st July 2020. The RLLR is reduced to 6.25 per cent per annum from 6.65 per cent per annum w.e.f 01st June 2020.

Consequently, EMIs on eligible home loan accounts linked to MCLR will get cheaper by approx. Rs. 421 and those linked to EBR/RLLR will get cheaper by around Rs. 660, for a 30 years loan of Rs. 25 lakh.

With repo rate coming down by such a huge margin, the cost of funds for banks get lower.

As a result, banks especially SBI because of excess liquidity at lower cost is able to see their MCLR come down. 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.

Watch: What is Repo Linked Lending Rate, Home Loan? RLLR meaning, comparison vs MCLR

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 is based on 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.

For those looking to switch from MCLR to RLLR, it may be better to wait before switching. Although predicting the movement of interest rate is difficult, any upward movement will not be favorable to RLLR based borrowers.

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