The Reserve Bank of India brought down their repo rates urging the public and private sector banks to reduce their loan rates as well. This is the fourth time in the year that RBI has reduced their repo rates. Previously the loan borrowers were not getting the benefit of RBI reducing the repo rates, and the government took the measures in the step and asked the banks to link their repo rates to the interest rates.

The biggest bank in India, the State Bank of India, has followed suit and reduced their home loan rates. The one-year marginal cost of fund-based lending rate (MCLR) to 8.15 percent by implementing the ten basis points reduction. This is the fifth consecutive reduction in the MCLR rate by the SBI.

SBI has also launched repo linked loan rates, and now the borrowers will have the option to between the MCLR or repo linked interest rates for the loan. If the borrower chooses the repo rate linked interest rate, it will mean that the interest rate will change every time the RBI changes their repo rates.

Faster reflection of reduced rates:

As compared to the MCLR rates where the banks only change the rates once a year, the repo rates are set to change every two months. The loan borrowers, who opt for repo rate linked system, will have to keep a close eye on the benefits that the RBI is offering. This also means that if the repo rates are increased, the interest rate will increase too.

The banks that have reduced their MCLR rates are SBI, Punjab National Bank, Central bank of India, ICICI Bank, and HDFC Bank. One percentage comprises of 100 basis points and the private banks ICIC bank and HDFC have already reduced their MCLR rates by 10 bps.

Current lending rates:

After the MCLR reduction, the MCLR rates stand as follows:
  • ICICI Bank: 8.60 percent
  • Central Bank of India: 8.5 percent
  • PNB: 8.4 percent
  • SBI: 8.25 percent
For HDFC bank, the rate is 8.6 percent for the loan up to Rs 30 lacs. However, for women borrowers, the lending rate is 8.55 percent. For the loan above Rs 30 lacs and up to 75 lacs, the rate is 8.85 percent, and for women borrowers, it is 8.80 percent. For the loans above Rs 75 lacs, the rate is 8.90 percent, and for women, it is 8.85 percent.

How it impacts the borrowers?

The banks have been slow in passing the benefits of the reduced repo rates to the borrowers, but now they will be able to enjoy the benefits due to the repo rate linked loan rates. However, the borrowers will only be able to enjoy it if they opt for the floating rate of interest. For the existing borrowers, they can ask their bank to reduce their home loan rate and let them enjoy the benefit that the RBI is offering.
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