SBI's New Year gift: Base rate cut by 30 bps, home loan fee waiver extended

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In a surprising move at the start of the year,State Bank of India (SBI) reduced its base rate and benchmark prime lending rates (BPLR) for existing customers by 30 basis points each effective from January 1.

One basis point is a hundredth of a percentage point.

The bank said it would also extend its ongoing waiver on sbi home loan processing fee till March 31 for new customers and for customers switching their loans from other banks to SBI

Though all new customers are offered the marginal cost-based lending rate (MCLR), a large chunk of retail customers — especially on the home loan side — as well as old corporate loans, are still in the base rate system.

About 8 million customers would benefit from this move, said P K Gupta, managing director (retail and digital banking),SBI.

The revised base rate for the bank is now 8.65 per cent, while the BPLR is 13.40 per cent. The base rate is the minimum a bank can offer to its customers.

"The reduction in the base rate is a New Year gift to the bank's loyal customers, as a large number of consumers who have their loans linked to the base rate will benefit. This reduction is part of the bank's efforts to ensure transmission of the reduction in policy rates of the recent past," Gupta said.

The benefits from this move would be reasonably good. Consider a borrower who has a home loan outstanding of Rs 5 million with a tenure of 20 years. Suppose his sbi home loan interest rate is 15 basis points above the base rate, or 9.10 per cent, his new rate will come down to 8.80 per cent. His equated monthly instalment (EMI) will fall from Rs 45,308 to Rs 44,345, a drop of Rs 963 each month and a saving of Rs 11, 556 annually.

According to experts, this is a long-called for measure. "Older customers have been paying a much higher rate of interest for a very long time. This measure will partially reduce the burden of such customers," said Harsh Roongta, a fee-only investment adviser.

Those who took a home loan at the start of 2016, just before the MCLR (marginal cost of funds-based lending rate) rate regime began (in April that year), would have been paying a home loan rate that is 10-15 basis points above the base rate. So their home loan rate will come down to 8.75-8.80 per cent.

Many people who had taken the loan much earlier, say, in 2011, would be paying a rate that is 150-200 basis points above the base rate. After the cut, their home loan rate will stand at 10.15-10.65 per cent. On the other hand, the best rate available from SBI under the MCLR regime is 8.35 per cent currently (8.30 per cent for women borrowers).

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