By Accommodation Times Bureau
SBI reduces the base rate by 0.25% on home loans. A day after the RBI cut cash reserve ratio by a quarter of a percentage point (25 basis points), the State Bank of India (SBI) on 18th September reduced its base rate by an equal amount.
It will be effective from 22nd of this month. SBI’s base rate will be 9.75 % per annum, down from the current 10%. Base rate is the rate of interest below, which banks cannot lend to their customers except under special situations. SBI’s base rate is lowest when compared to other banks. Henceforth, it is believed that it will force other players of this competitive banking sector to reduce their base rates.
Back of the envelope calculation shows that a 25 basis points cut in a home loan of 20 years tenure can reduce EMI by about Rs 17 for every Rs 1 lakh loan. So, if a person has taken a Rs 30 lakh loan of 20 years tenure, the annual savings work out to about Rs 6,100.
Although, all existing and new customers for home loans are not fixed are expected to benefit from the 25 basis point cut in base rate by SBI. Interestingly, the cut in base rate by India’s largest lender came the same evening K C Chakraborty, one of RBI’s deputy governors, voiced his distress that banks were not passing on the benefits of the decision to cut CRR to their customers. SBI’s move has also come within a fortnight of it deciding to cut deposit rates, a step several other banks too took. Industry players said the cut in deposit rates was mainly because of low pace of credit off take, which, in turn, left large sums of money with banks.
A clear picture will be seen when the banks re-open after the holiday on Wednesday, Ganesh Chaturthi.