The State Bank of India (SBI) said on it will use the repo rate as the external benchmark for its floating rate loans for MSME, housing and retail loans. According to a press release issued by the bank, this will come into effect from October 1.
The decision has come after the Reserve Bank of India (RBI) mandated all banks to link their floating rate loans to an external benchmark.
RBI in its notification dated September 4 has asked all the banks to offer their loans with interest rates linked to an external benchmark. These are:-
a) RBI’s repo rate
b) Government of India 3-month treasury bill yield
c) Government of India 6-month treasury bill yield
d) Any other benchmark market interest rate published by Financial Benchmarks India Private Ltd.
SBI was the first bank to offer repo rate linked home loans from July 1, 2019.
However, the bank, in a response to a user query, said on its official Twitter handle last week that it had withdrawn its repo linked loan scheme. “RLLR based home loan scheme have been withdrawn. You can get the home loan migrated to MCLR based home loan.“
SBI’s old repo rate linked home loan scheme
It may be recalled that SBI was the first bank to launch a repo-rate linked loan scheme back in July. The bank had introduced repo-linked lending rate for home loans from July only for new customers. The bank was mulling offering repo-rate linked home loans for existing borrowers as well.
“SBI’s repo-linked lending rate (RLLR) had a 2.25% mark-up over the repo rate, which was 5.40% at present. So, RLLR was 7.65%. Then there was a spread of 40 basis points and 55 bps above the RLLR. So, new borrowers could avail themselves of home loans from SBI at 8.05% or 8.20% per annum,”. These rates were effective from September 1, 2019. One basis point is equal to one-hundredth of one percent.
After SBI, many other public-sector banks have launched repo-rate linked loan products. These include Bank of Baroda, Syndicate Bank have followed suit, while other PSBs like Union Bank of India, Canara Bank, Central Bank of India and Allahabad Bank have announced plans to launch such products.
The press release issued on Monday by SBI stated that few modifications have been made to the scheme launched in July. However, what those changes are will be announced very soon.