Mumbai: Home loan borrowers waiting for lower interest rates may be disappointed. State Bank of India (SBI), the country’s largest lender, on Friday announced a marginal reduction in home loan rates of 5 basis points for loans up to Rs 30 lakh up to Rs 30 lakh, effective February 7.
One basis point is one hundredth of a percentage point.
This marginal rate cut comes despite the Reserve Bank of India (RBI) reducing its policy repo rate by 25 basis points a day earlier. This was the first rate cut from the central bank since August 2017, which also saw the MPC changing its stance from calibrated tightening to neutral and lowering its inflation forecast sharply thereby opening room for another cut in its April policy. Repo rate is the rate at which RBI lends money to commercial banks in the event of any shortfall of funds and is used by the RBI to control inflation.
Rajnish Kumar, chairman, SBI, said, “SBI has the highest market share of the home loans market and it is only appropriate that we empower the large, lower and middle class segment by transmitting the rate cut announced by the RBI”.
Speaking on the sidelines of an event earlier during the day, Kumar had said that though the bank may reduce home loan rates, it might not reduce the benchmark lending rates.
“It is difficult for us to cut deposit rates as SBI’s deposit rates are lower than most other banks. Without cutting deposit rates, we can’t cut benchmark lending rate (MCLR i.e the Marginal Cost of Funds-based Lending Rate). But for home loan rates we will do something though the quantum will be small,” Kumar had said.
SBI is the largest mortgage lender in the country with a market share of 34.28 per cent. SBI home loans are linked to one-year MCLR. Another lender, Bank of Maharashtra, has reduced the MCLR on six-month loans by 5 basis points to 8.55 per cent per annum, which would help its SME and MSMEs borrowers get a marginal reduction in their working capital loans.
Banks have been struggling with low deposit growth of 6-7 per cent, which is not keeping pace with double-digit credit growth of 14 per cent. Banks are facing competition in deposit mobilisation from post office schemes and other investment avenues that are offering higher interest rates. So banks in their struggle to grow their deposits are unable to lower deposit rates and thereby reduce their lending rates.
In addition, banks are saddled with huge bad loans which requires provisioning, resulting in profitability pressures.
In a post-policy conference with reporters, RBI Governor Shaktikanta Das had said he will speak to bankers to ensure a quicker and better transmission of the policy rates in a meeting scheduled to take place in two-three weeks.