For SBI Home Loan Customers, Not Much to Cheer. Here's Why

Mumbai: State Bank of India (SBI) may have cut its base lending rate by 40 basis points to 9.3 per cent following the Reserve Bank’s latest policy rate cut, but home loan customers of the country’s largest lender will have to pay up to 0.7 per cent above the base rate, and interest of as much as 10 per cent for their loans.

Accordingly, the actual reduction in home loan rate will be a maximum of only 20 basis points, while a higher margin above the base rate will mean customers will have to pay the same rate of interest for home loans above Rs 1 crore.

The rate for ‘Maxgain’ home loans above Rs 1 crore – at 9.75 per cent for women – would come down only 20 basis points, while for other customers it would actually remain unchanged at 10 per cent with effect from Monday despite a reduction of 40 basis points in base rate.

For CRE (commercial real estate) Maxgain loans, SBI would charge as much as 65 basis points above base rate or 9.95 per cent for women customers and 70 basis points above the base rate or 10 per cent for other customers.

The bank’s spokesperson was not immediately available for comments. However, bank officials tried to justify the increase in the markup over base rate, saying the decline in actual home loan rates has been 75 basis points since December 2013, as against a reduction in base rate by 70 basis points.

They also said that the base rate for other lenders continues to be higher at 9.55 per cent, while in December 2013 also it was higher at 10.3 per cent as against SBI’s 10 per cent.

Interestingly, state-owned SBI was among the first lenders to announce a reduction in its rates after the RBI surprised with a 50 basis points cut in its policy rate on September 29 as it lowered its minimum lending rate, or base rate, by 40 basis points – the highest for any lender so far – from 9.7 per cent to 9.3 per cent with effect from October 5. (Read: SBI cuts lending rate)

“RBI has cut interest rate by 0.50 per cent, we have reduced it by 0.40 per cent,” SBI chairperson Arundhati Bhattacharya had said on Tuesday about the cut in SBI’s base rate, soon after RBI Governor Raghuram Rajan announced a 50 basis point cut in the central bank’s policy rate to 6.75 per cent – the lowest level in his tenure.

However, in its latest circular dated October 3 to all local head offices, SBI has explained the actual home loan interest rates that would be applicable across various categories following the latest reduction in the base rate coming into effect from Monday, October 5.

According to the circular, women customers, who typically get a subsidised rate, would be charged 20 basis points above the base rate, resulting in an actual interest rate of 9.5 per cent Monday onwards – down only 20 basis points from the existing rate of 9.7 per cent.

Till now, women home loan customers were being given housing loans at the base rate of 9.7 per cent without any markup, but Monday onwards, they will be charged 20 basis points above the base rate of 9.3 per cent or an interest rate of 9.5 per cent.

Other customers, who were being charged 5 basis points above the base rate or 9.75 per cent, would have to pay 25 basis points above base rate, or 9.55 per cent, for home loans – resulting again in an actual reduction of 20 basis.

For Maxgain home loans for amount more than Rs 1 crore, SBI was till Sunday charging 25 basis points above the base rate or an actual rate of 9.95 per cent to women customers and 30 basis points over and above the base rate or a final rate of 10 per cent for others. This rate would come down to only 9.75 per cent for women customers, as the markup has been increased to 45 basis points over the base rate, while the rate for other customers in this category would come down to only 9.8 per cent as the margin has gone up to 50 basis points.

From Monday, the rate for women customers in the CRE Maxgain category would be 65 basis points above base rate or an actual rate off 9.95 per cent, while the same for other customers would be 10 per cent or 70 basis points over the base rate.

Explaining the revised rates, SBI said these would be applicable to all home loans including takeover proposals from other lenders and those sanctioned by various branches with effect from October 5.

The revised rates would also be applicable to those existing home loan borrowers who are paying higher interest rate than the current rate and want to switch over to the current rates on upfront payment of one-time switchover fee.

“No further interest concession would be available under any arrangement and in any case, the effective interest rate should not be allowed to go below (these) rates,” SBI said.