Home / Money / Personal Finance /  SBI, Bank of Baroda cuts MCLR: What it means for your home loan EMIs

India's biggest bank State Bank of India (SBI) on Wednesday cut its marginal cost of fund-based lending rate (MCLR) by 15 basis points across all tenors, just hours after the Reserve Bank of India (RBI) lowered its repo rate. SBI's new MCLR rates will be effective from August 10, 2019. After the latest revision, SBI's one-year MCLR will come down to 8.25% per annum from 8.40% earlier. MCLR is the minimum interest rate that a bank can lend at and is linked to the actual deposit rates.

Earlier, Bank of Baroda, had cut its MCLR with effect from 7 August 2019 by 15 basis points, with the new one-year MCLR rate at 8.45%. Oriental Bank of Commerce and IDBI Bank on Thursday announced a cut in the range of 0.05 to 0.15 percentage points in the marginal cost of funds based lending rates (MCLR) for various tenors.

SBI, which claims to be largest mortgage lender in the country, said this is the fourth cut in MCLR in FY 2019-20.

If you are an existing home loan borrower from SBI, the latest cut of 15 basis points on MCLR will however not bring down your home loan interest rate immediately.

If your SBI floating rate home loan is linked to MCLR, you will have a reset clause. For instance, SBI's floating rate home loans are typically linked to to one-year MCLR and it will have a one-year reset clause. If the reset clause is in July and the MCLR cut happens in August, your home loan rate will not change till next July. Moreover, banks typically adjust the tenure of the loan instead of the EMI, based on the movement of rates.

Last month, SBI had launched a new home loan product linking its interest rate with RBI's repo rate. This new home loan product from SBI has a maximum tenure of 33 years. Under this new mechanism, the interest rate on this home loan will change upwards or downwards, in line with movement of RBI's repo rate. The loan is linked to repo-linked lending rate, which is 225 basis points over repo rate. The bank also charges a spread above the repo-linked lending rate.

From May this year, SBI had linked all cash credit and overdraft accounts with limits above 1 lakh to the repo rate, plus a spread of 2.25%. For savings deposits above 1 lakh, it had set its savings deposit rates to 2.75% below the repo rate.

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