State Bank of India or SBI was the first bank in India to offer a home loan product in which the interest rate is linked to the Reserve Bank’s repo rate, when it launched the scheme in July this year. Subsequently, many banks, including PNB and Bank of Baroda, have come up repo-linked home loan products and more banks are expected to offer such products in near future. Interest rate under SBI’s repo-linked home loan product will fall to 8.05% from today (September 1), from 8.4% earlier, after RBI last month reduced repo rate by 35 basis points. This rate will be applicable to all existing and new repo-rate linked loan customers of SBI.
SBI’s chairman Rajnish Kumar has said that the new bank’s new offer on repo rate-linked home loan is getting good response from customers.
How SBI’s repo-linked home loan rate works
The lending rate of SBI’s repo-linked home loan is based on the bank’s repo rate lending rate (RLLR), which in turn is linked to RBI’s repo rate. SBI’s RLLR is fixed 225 bps over RBI’s policy repo rate (currently at 5.4%).
When the RBI changes the repo rate, SBI’s RLLR changes automatically and thus the effective home loan rate.
In case of SBI’s repo-linked product, the RLLR will change from the first day of the following month of RBI’s rate revision. For example, RBI cut repo rate by 35 bps on 7th August and accordingly SBI’s RLLR changes from September 1.
So from September 1, SBI’s RLLR will fall to 7.65% (5.4% or 540 bps + 225 bps).
SBI then charges a spread, depending on the borrower’s credit score (40 bps to 55 bps) for home loans up to ₹75 lakh.
So, from September 1, for borrowers with good credit score, SBI will charge 8.05% (RLLR of 7.65% + 40 basis points). The spread increases to RLLR + 95 bps or RLLR +110 bps in case of home loans above ₹75 lakh.