SBI cuts home, auto loan rates Lending Rates Down By Up To 50 BPS, Existing Borrowers Not To Benefit

Mumbai: Home and auto loans are set to become cheaper with the country's largest lender State Bank of India cutting lending rates by up to 50 basis points effective August 7. 

    SBI has said that it will bring down interest rates on car loans to 10.75% from the prevailing 11.25%. This will result in the equated monthly installment on a seven-year loan declining to Rs 1,699 for every Rs 1 lakh as against Rs 1,725 earlier. The bank has also decided to offer home loans of up to Rs 30 lakh at 10.25% down from 10.5%, and loans between Rs 30 lakh to Rs 75 lakh at 10.4%. Following this reduction SBI's home loans and auto loans will be the cheaper than its rivals by over 50 basis points. On a Rs 10-lakh 20-year loan, a 50 basis point reduction would result in savings of Rs 286 a month. 
    Since SBI has not announced a revision in its base rate, the reduction will apply only to new customers and not to existing borrowers. However, the bank allows existing borrowers to refinance their loans for a fee. With the Reserve Bank of India and National Housing Bank requiring lenders to waive pre-payment charges, other lenders are in a dilemma as they risk facing a churn in their portfolio. 
    SBI's rate cut follows a 100 basis points reduction in the statutory liquidity ratio by RBI on Tuesday. This frees around Rs 10,000 crore for SBI which is currently invested in government bonds. Immediately after the policy, SBI chairman Pratip Chaudhuri had hinted at a reduction in retail rates by stating that since corporate demand is fixed there could be a scramble for retail loans and that may come on the back of a rate cut. "For a bank as a whole even if cut the rate from 11 to 10.5% so long as money is coming from release of SLR at 7.5% or 8%, it is an add to our bottom line," Chaudhuri had said. 
    Although RBI has been pressing for uniform reduction in rates for new and old borrowers, Chaudhuri has always made a case for banks being given the freedom to vary the spread between the benchmark rates and the loan rate. "The interest spread on loans is determined by the demand and supply position at a given point of time and I should be given the flexibility to move according to the demand or according to the book I have," Chaudhuri had said. "For example, today can you say that two months back I paid a higher price for an iPad or an iPhone so the price should be lowered for me," he added. Speaking to newspersons after the policy on Tuesday, Chaudhuri had said that customer is protected because of the withdrawal of pre-payment charges. "Today most of the loans can be closed without a pre-payment penalty. So, if you find that a new loan has come and your existing bank is not reducing interest rates you can shift from that bank and come here," he said. 
LOWER EMIS 

• SBI's loans to be the cheaper than its rivals by over 50 basis points 

• Interest rates on car loans down to 10.75% from 11.25% 

• Home loans of up to Rs 30 lakh now at 10.25%, down from 10.5%, and loans between Rs 30 lakh and Rs 75 lakh at 10.4%