State Bank of India (SBI), the country’s largest lender, decided to link all the floating rate retail loans and loans to micro, small and medium enterprises (MSME) to the Reserve Bank of India’s (RBI) repo rate, with effect from October 1.
In July, SBI had linked home loans to the repo rate but decided to discontinue the product earlier this month after the RBI came out with guidelines, mandating external benchmark-based floating rate products.
Changes to product
“SBI had introduced floating rate home loans effective July 1, 2019. A few modifications have been made in the scheme effective October 1, 2019 to comply with the latest regulatory guidelines,” the bank said in a statement.
In the earlier repo-linked home loan product, only the principal component was equated to the monthly instalment while from October 1, both interest and principal will be equated to monthly instalments.
The interest rate of the repo rate-linked loan will be below the present structure of MCLR-linked loans.
The RBI had mandated external benchmark-linked interest rate to all banks for faster transmission of monetary policy rate.
Linking floating rate loans to repo rate would mean every time there is a change in repo rate, interest rates will change automatically.