State Bank of India (SBI), the country’s largest lender, has decided to cut its base rate by 30 basis points (bps) to 8.65%. This will benefit 80 lakh existing customers. (100 basis points = 1 percentage point).
It also reduced its benchmark prime lending rate (BPLR) by 30 bps to 13.4%. BPLR was the benchmark loan rate till June 30, 2010, when it was replaced by the base rate.
Fee waiver
Both changes came into effect from Monday. The country’s largest lender has also extended the home loan processing fee waiver till March 31. Base rate was the benchmark lending rate prevailing till March 31, 2016, before a new loan pricing mechanism, the marginal cost of funds based lending rate, kicked in on April 1, 2016. SBI said the base rate reduction was due to the declining cost of funds as it had cut its deposit rate in November.
“We had reduced some of the our deposit rates in November. The base rate review happens once in a quarter; the latest was in the last week of December,” P.K. Gupta, MD, SBI, told The Hindu . “So, we have passed on some of the benefits on account of reduction in the deposit rates.”
The Reserve Bank of India (RBI) has been prodding banks to cut interest rates for existing customers since lenders mostly limit their interest rate cuts to new customers.
“We have been saying that the transmission from the policy rate to the base rate happens with a lag. That is why it has taken a bit longer for transmission to happen,” Mr. Gupta said.
The RBI has reduced the policy rate by 200 bps to 6% since January 2015.
“After the Real Estate (Regulation and Development) Act, 2016, came in, there were a lot of delays in getting RERA approvals. People who wanted to buy homes could not buy them. Now, it has stabilised with the permissions coming in; so, we have extended the waiver,” Mr. Gupta said.
