Floating rate retail loans such as home loans and mortgage loans are turning cheaper as major banks are giving effect to the recent 25 basis points repo rate cut by RBI’s Monetary Policy Committee (MPC).
Banks such as State Bank of India, Punjab National Bank, Bank of Baroda, Union Bank of India and Bank of India have lowered their external benchmark lending rates (EBLRs) to the extent of the repo rate cut, leading to equated monthly instalment outgo for borrowers coming down to an extent.
This softening in lending rates comes in the run-up to the close of the current financial year and could set off intense competition among banks to garner business, say bankers.
For example, SBI has cut its EBLR from 9.15 per cent + CRP (credit risk premium) + BSP (business strategy premium) to 8.90 per cent + CRP + BSP. The Repo Linked Lending Rate (RLLR) has been cut from 8.75 per cent +CRP to 8.50 per cent + CRP.
Repo rate cut
The MPC cut the repo rate from 6.50 per cent to 6.25 per cent with effect from February 7.
Sanjay Agrawal, Senior Director, CareEdge Ratings, observed that while the transmission of the repo rate cut to EBLR and hence some of the retail asset classes is seamless, it is not so in the case of deposit rates.
“Deposit rates are a function of liquidity. Over the last 15 days, banking system liquidity has been tight. Yields on corporate bonds have risen. So, deposit rates are expected to remain at the current levels for some more time. Wholesale loan rates (which are linked to the marginal cost of funds-based lending rates/MCLR) will continue to be sticky,” he said.
