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SBI reduces interest rates on home loans and fixed deposits 2019

In the latest turn of events, India’s largest Bank, the State Bank of India cuts down the interest rates on home loans and fixed loans. On 9th September 2019, the State Bank of India announced that there will be a reduction in the marginal cost of lending rate (MCLR) and interest across all tenors.

What’s the reduction of interest rates in the announcement by SBI?

As per the announcement by SBI, the interest rates will be reduced by 10 basis points starting from 10th September, 2019. Thus, this announcement by the State Bank of India marked the 5th consecutive MCLR reduction by the State Bank of India, the country’s largest bank in this financial year.

SBI MCLR rates Now

Tenor

Existing MCLR (In %)

Revised MCLR (In %)

Over night

7.9

7.8

One Month

7.9

7.8

Three Months

7.95

7.85

Six Months

8.1

8

One Year

8.25

8.15

Two Years

8.35

8.25

Three Years

8.45

8.35

Explanation of the reduction in details

As the MCLR rates are based on the bank’s own funding costs, the MCLR for 1 year has been reduced to 8.15% as previously existing from 8.25%. Depending upon the announcement by the State Bank of India, the other banks of the country may also decide to reduce their MCLR and thus may reduce the rates.

Also, the retail deposit rates have decreased by about 20 to 25 basis points and accordingly bulk term deposit rates has been decreased by about 10 basis points to 20 basis points.

Why was the decision of the rates reduction taken place?

As per the explanation by the Country’s largest bank, the State Bank of India, the reduction in the rates have been done because of the “falling interest rate scenario and surplus liquidity.” Also the Reserve Bank of India (RBI)’s reduction in the repo rate by 1.1%, which is the key rate of interest at which, the Reserve Bank of India lends short-term funds to all other Banks has been at the back for the announcement by the State Bank of India.

After effects of the announcements by the State Bank of India

Even after the rates were slashed, the changes in the rates will not lower the EMIs of the existing home loan customers of the State Bank of India. You must keep in mind of the fact that the State Bank of India has around 35% of the total market share in home loans and more than 365 in auto loans. The Bank’s floating home loans generally comes with the 1 year reset clause and are in fact linked to the 1 year MCLR.

Also, as per the guidelines as laid down by the Reserve Bank of India, the interest rate which comes under the external benchmark will be reset once in 3 months, and this event announcement lead to the State Bank of India to link the lending rates to the external benchmark.

Check out the table containing the SBI interest rates on retail domestic term deposits below INR 2 Crores:

Maturity period

Interest rate

For general public

For senior citizens

Existing 

Revised 

Existing

Revised

7 days to 45 days

4.50%

4.50%

5%

5%

46 days to 179 days

5.50%

5.50%

6%

6%

180 days to 210 days

6%

5.80%

6.50%

6.30%

211 days to less than 1 year

6%

5.80%

6.50%

6.30%

1 year to less than 2 year

6.70%

6.50%

7.20%

7%

2 years to less than 3 years

6.50%

6.25%

7%

6.75%

3 years to less than 5 years

6.25%

6.25%

6.75%

6.75%

5 years and up to 10 years

6.25%

6.25%

6.75%

6.75%

(Source: sbi.co.in)

We can conclude from this table that the rates for Fixed Deposits maturing in 7 to 45 days remains unchanged at 4.5% and haven’t seen any change while those Fixed Deposits maturing in 180 days to less than 1 year will now attract an interest rate of 5.8%. Also, for the Fixed Deposits maturing in 2 years to less than 3 years, the State Bank of India will offer an interest rate of 6.25%, from the previous 6.5%.

More insights over the SBI’s reduction of interest rates in the announcement

While, the economy of the country is witness its lowest point in past 6 years, the Reserve Bank of India has tried to offer better transmission of the rates cuts and at the same time has emphasised the need for the commercial banks like State Bank of India and others to offer the advantages of the interest rates cuts to the loan borrowers.

The SBI’s decision to the rates cut will substantially benefit the home loan borrowers and they will see the cost of borrowing, lower as compared to the previous.

In fact, most of the Banks have been slow in passing on the policy changes benefits to customers. As per the data as collected and statement by the RBI Governor Shaktikanta Das, “the banks have reduced their interest rates by only 29 bps as compared to 75-basis point cut prior to August 7 reduction on fresh rupee loans ” while speaking on the after events of the repo rate reduction of the 4th announcement for the reduction in the same financial year on 7th August. However he was confident that the higher transmission will be done in the upcoming months ahead.

Now, the existing borrowers along with the new ones, who have opted for a floating rate interest rate types can reap in the benefit of this rate reduction. But, make sure that you reach to your bank and ask for the readjustment on the rates for you.

When it comes to the loan tenures, the borrowers may the loan tenure reduced marginally as a result. You must acknowledge the fact that as per the banks, the banks generally reduce the repayment loan tenure instead of the reduction in the EMI Amount, during the process of implementing interest rates cuts. Thus, you may see such changes like the loan repayment tenure of 20 years may now come down to about 18 years and other such!

As per the announcement by the State Bank of India, SBI’s home loan interest rates for up to Rs 75 lacs, will now range between 8.25% and 8.8%, depending various other salient factors like the Borrowers borrowing capability and others. However one must note that previously, the interest rate range on the Home Loan for the same borrower was 8.35% to 8.90%.

Check out the EMI Scenario

If we talk about the EMI Scenario, the EMI for a housing loan of Rs 30 lacs with the home loan tenure of 15-years will now amount to the EMI of INR 29104 as compared to the previous EMI amount of INR 29279 (at 8.35 per cent%). While, the amount may be very small; but upon calculating the final reduction in the interest payable, it amounts to as close as INR 31500.

However, because of the reset clause, the existing home loan customers will have to wait awhile to see an impact on their EMIs. As explained earlier, the interest rate of the loan for the borrower can only be changed on the reset period (a typical 1 year). So, not to get over excited, the loan rate of yours will come down only after 1 year from the reset date. Thus, if your loan has a rest clause of September, you will have to wait till next September, i.e. till September 2020 to enjoy the lower interest rate.

One must keep a fact in mind that the home loans are going to get cheaper from the next month. The RBI has asked all Banks to link their loan products to key repo rates, as we discussed it earlier in our article. Thus, offering some respite to the home loan borrowers, the recent announcement by the State Bank of India will offer some respite in this hard time of sliding GDP and poor economic condition!

It’s a sort of festival gift before the actual festival begins from the next month! While, the State Bank of India has made its verdict out, many other banks will follow the same suit and will be offering the same reduction in the coming days! It’s the moment of joy for the Home Loan borrowers! Now, the Home Loans will be the less expensive affair!

 

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