Having linked its short-term loans and large savings deposits rates to the RBI’s repo rate earlier this year, the State Bank of India had announced in June that it would introduce repo-linked home loans from July. While this was great news for new home loan customers since the apex bank has slashed the repo rate by 1.1 per cent in this calendar year alone – including the 35 basis points (bps) reduction announced by the monetary policy committee (MPC) this month – the bank’s existing customers did not gain anything from this development. But that may change in the near future.
SBI Chairman Rajnish Kumar told The Economic Times that the bank is examining the possibility of extending the benefit of the repo-linked lending rate (RLLR) to the existing home loan borrowers so that they too can avail cheaper loans. This move comes amid a liquidity surplus in the banking system for 10 straight weeks since June and expectations of better traction in consumer demand in the second half of the fiscal. Though the net liquidity surplus recorded moderation during the August 5-9 week declining 31 per cent to Rs 1.4 lakh crore on August 8, the figure has consistently remained above Rs 1 lakh crore since July 11, barring two days in the second last week of the month, according to CARE Ratings.
“There is no supply side constraints as of now. The banks are capitalised enough, interest rates have moderated while the system has surplus liquidity,” said Kumar. However, pointing towards the subdued credit demand in the economy, he added that “there is a need for stimulus in the economy”. According to him, increased spending by the government and the upcoming festive season would boost demand. SBI is reportedly expecting around 12 per cent growth in loans this fiscal over an outstanding of Rs 23 lakh crore while trying to contain fresh slippages from the farm, MSME and retail sectors. It had reported Rs 16,000 crore fresh slippages in the June quarter.
If SBI does end up extending repo-linked home loans to existing customers, the latter can expect the interest rate to go down by up to 85 bps. The bank’s RLLR has a 2.25 per cent mark-up over the repo rate of 5.40 per cent currently. In other words, the RLLR stands at 7.65 per cent, over which the bank adds a risk-based spread of 40-55 bps. So, depending on the credit profile of the borrower, the interest rate on repo rate linked home loans works out to 8.05-8.20 per cent per annum.
In comparison, SBI’s lending rates for home loans linked to MCLR (marginal cost of funds-based lending rate) stand at 8.35-8.90 per cent for loans up to Rs 75 lakh. The bank has lowered MCLR by 30 bps since February while the RBI reduced policy rate by 110 bps.
Apart from SBI, public sector banks like Allahabad Bank, Syndicate Bank, Bank of India and Union Bank also offer repo rate linked home loans to new customers at present.