SBI home loan interest rate has been increased by 5 basis points recently. This is due to the increased marginal cost of funds-based lending rates (MCLR) by up to 25 basis points (bps). The State Bank of India (SBI), has hiked its base rate (BR) and benchmark prime lending rate (BPLR) by 5 bps. The hike came in effect from 1st April 2018. It has increased its base rate from 8.65% to 8.70% per annum, for the first time in five years. The bank also increased its BPLR from 13.40% to 13.45% per annum.
Due to this move, existing SBI home loan interest rate has become slightly more expensive. The last increase in base rate and BPLR happened in 2013, with rates going down since then. The bank has ascribed the base rate hike to the hike in term deposit rates. SBI also increased their 2-10 year retail term deposits by 10-25 bps recently. The increase occurred due to a shortage of cash in the banking system. It is also the second hike in deposit rate in the past one month.
The SBI home loans which have been taken before April 2016 and after July 2010 are linked to the base rate. From April 2016 onwards, all home loans offered by banks are linked to the marginal cost of funds-based lending rates or MCLR. Banks (including SBI, PNB, and ICICI) increased their MCLR by 10-20 bps in March 2018 due to a liquidity squeeze, which actually led to the increase in base rate.
Meanwhile, even Allahabad Bank reduced its lending rates from April 2nd, 2018 and lowered its base rate to 9.15%. The bank also reduced its BPLR from 13.85% to 13.40% per annum. SBI home loan interest rate may have become costlier, but EMIs have come down in comparison to Allahabad Bank. This has happened as its loans are linked to its base rate.
Even HDFC Bank has hiked its home loan rates by 5 to 20 bps, increasing its rates by 0.20%. This is the first time since 2013, that the bank has increased its retail prime lending rate (RPLR). The hike reflects an increase in the cost of funds.
What is base rate, BPLR, and MCLR?
In simple layman words, base rate is the minimum rate set by the Reserve Bank of India below which banks are not allowed to lend money to their customers. Meanwhile, BPLR is the rate at which commercial banks charge their customers who are most credit worthy. The RBI specifies the interest rates, as depends on the repo rate and cash reserve ratio apart from an individual’s bank policy. MCLR is the minimum interest rate of a bank below which it cannot lend. It can only lend in cases allowed by the RBI. MCLR is the reference rate of a bank.
Experts are predicting lending rates to rise in the banking system. As per the RBI policy, banks seem to be reducing their base rates to their MCLR – which is why some banks are increasing their base rates and some are decreasing them. Even though the Monetary Policy Committee has decided to keep the policy repo rate unchanged for the fourth consecutive time since August 2017, but ironically banks are reviewing dates. A recent Morgan Stanley report has predicted that the RBI will go for a hike in key policy rates. The hike will happen by the fourth quarter of 2018, and loans are going to get expensive.