The country’s largest lender State Bank of India (SBI) today reduced its marginal cost of funds based lending rate, or MCLR, by 5 basis points across all tenors, bringing down the home loan interest rate for its borrowers. After today’s rate cut, the one-year MCLR will come down to 8.45% per annum, from 8.50% per annum. As a result, interest rates on all loans linked to MCLR will get reduced by 5 basis points with effect from 10 May 2019.
This is the second rate cut by SBI in a month. After the April monetary policy announcement by the RBI, SBI had cut the one-year MCLR by 5 basis points on 10 April. SBI had also reduced the interest rate by 10 bps on home loans up to ₹30 lakh.
From May 1, India’s largest bank State Bank of India (SBI)moved to a new interest rate regime on large savings account deposits as well as short-term loans. SBI linked its interest rate on savings account with balance above Rs1 lakh and short-term loans like overdraft and cash credit facility to Reserve Bank of India’s (RBI) repo rate, effective 1 May 2019. Or in other words, interest rates on large SBI savings account deposits and interest rate on some short-term loans will automatically change as and when RBI changes its repo rate. This will help in better transmission of RBI’s policy rates into the banking system.
After back-to-back interest rate cuts by the RBI in February and April, repo rate currently stands at 6%.
All SBI cash credit accounts and overdrafts with limits above ₹1 lakh are linked to the RBI’s benchmark policy rate, plus a spread of 2.25%—amounting to 8.25%.
SBI charges a risk premium on these loans, over and above the floor rate of 8.25%, based on the risk profile of the borrower, similar to the current practice.
“With SBI having linked its cash credit and overdraft rates above ₹1 lakh to the repo rate for better transmission of RBI’s policy rates, the benefit of reduction in repo rate by 25 bps by RBI with effect from 4th April 2019 will get passed on in its entirety to such customers banking with SBI with effect from 1 May 2019,” the bank said.
SBI is India’s largest commercial bank in terms of assets, deposits, branches, customers and employees. SBI claims to have around 34% of market share in home loans and auto loans.
The public sector lender today posted a lower-than-expected quarterly profit partly due to provisions for bad loans but reported an improvement in asset quality. Provisions for bad loans jumped 24% quarter-on-quarter to ₹17,336 crore, but was still lower than the ₹24,080 crore. SBI shares today ended 2.5% higher today.