From July 1st SBI home loans will be linked with the repo rate.

By Abhay Harish Shah, Realty Quarter

On Friday the State Bank of India (SBI), the largest mass-lender in the country, opened a unique era of customer credit transparency by connecting sales of their home financial goods with the amount used by the central bank to set a wider borrowing price in the industry.

The lender said in a declaration a day after the cost of funds had been fixed to the lowest since 2010, that customers would have the choice of taking SBI home loans linked to the central bank repo rate from July 1. The step on Friday follows the choice in March by the Mumbai bank to connect its savings and short-term loan rates to the repo.

The bank is going to proceed to offer house lending products connected to the marginal cost of lending rate (MCLR), but clients can choose a repo-connected home-credit rate, said SBI’s Managing Director P.K. Gupta.

“This is a different product. It is associated with the repo and to an excess tenure than the normal home loan.  In comparison with 8.55% on the current house loan, the Rs.75-Lakh house loan is going to come to 8.40%,” Gupta said. “The tenure of the new product, however, will be higher and may extend to 35 years than the 30 years now, as customers have to pay an outstanding amount of 3% plus interest annually.”

At present, SBI provides clients 8.55% home loans of up to Rs.75 lakh amount. The fresh provided loan product will have a foundation of 2.25% higher than the repo rate of 5.75%, which is 8%. Gupta also said that the bank would charge a 40 basis point over the rate. One of the basis points is 0.01%. Current borrowers can move to the repo-associated product by paying 0.25%, Gupta said.

“Earlier this year, we connected our overdraft and cash credit levels and now have launched the product of the housing credit. As we said previously, we are progressively linking our credit rates to the RBI rates for rapid transmission,” said SBI CFO Prashant Kumar.

The Central Bank has been faced with the problem of transferring interest rates because high-street bank credits did not get cheaper as rapidly as the policy rate. “It was found in the past that transmission lasted four to six months. But now, the transmission has become faster than that,” Governor Shaktikanta Das informed journalists on Thursday after the policy decision.

Das said banks have only reduced rates by 21 basis points of the 50-basis point reduction in policy rates, going by the weighted average lending rate reduction.