On March 10, 2020, India’s biggest lender State Bank of India (SBI) announced that they are reducing their marginal cost fund- based lending rate across tenors by 15 basis points. The move is expected to garner attention from the potential homebuyers and boost sales in the real estate sector. The bank has reduced their MCLR rate by 10 BPS only for the tenures with which the home loans are linked. The home loan rate initially was at 7.85 percent. Currently, it stands at 7.75 percent.
 
For the current fiscal year, this is SBI’s tenth MCLR rate reduction following the direction from the RBI. The new rates will not be available for the home loan interest rates linked to repo rate as the rates for the same changes as soon as the RBI changes their repo rate.
Back in October 2019, HDFC bank reduced their floating interest rates by 10 basis points.
 
The reduction was appliable for both the new and existing home loan borrowers. The lending rates currently for HDFC banks lies between 8.25 percent to 8.65 percent.
Reserve Bank of India has been on a repo rate reduction spree since 2019. For the uninitiated, the repo rate is the rate with which RBI gives loan to the public and private sector banks. Reducing the repo rate means lower interest rates for the borrower. The RBI directed the banks to reduce their lending rates so the borrower can enjoy the benefits of repo rate reduction as well.
 
Several banks have followed the orders from the bank and reduced their home and automobile lending rate. The Reserve Bank of India has reduced its repo rate to 8.15 percent now. Punjab National bank, Central bank and ICICI Bank are among other banks who have reduced their MCLR rates.
 
How the reduction of MCLR affects the borrower?
MCLR rates are the rates at which the public and private sector banks benchmark their lending rate. Earlier, there used to be base rate system but the same was replaced by new lending benchmark and it has been effective across all banks and lenders since April 1, 2018.

Since RBI has been reducing their repo rates, the advantage of the same is reaching the end-user very slowly. Keeping the same in mind, the RBI has directed the banks to introduce a new benchmark to make sure that the consumers are getting the advantage of the same.
 
On October 1, 2019 repo rate linked lending rate was introduced under which the interest rates immediately change as soon as the RBI changes their repo rate.

The customers whose loan rates are linked to MCLR need to approach their lender and ask them to adjust their interest rate. The reduction of this scale can bring down the debt amount and tenure greatly.
 
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