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New Delhi: State Bank of India, the country’s biggest lender has reduced its marginal cost of funds-based lending rate or MCLR by 5-10 basis points in the shorter tenors i.e. up to 3 months with effect from Julty 10. This is 14th consecutive reduction in MCLR by SBI. After the recent revision, SBI’s MCLR up to 3 months tenor comes down to 6.65%, at par with its EBLR.

However, the latest MCLR reduction will not have any impact on home loan EMIs as the one-year MCLR, to which home loan rates are linked, remains unchanged at 7%. MCLR represents cost of funds for a bank. SBI’s MCLR continues to be the lowest in the market.

SBI’s one-year MCLR was last reduced by 25 basis points to 7% with effect from June 10, 2020. SBI home loan borrowers (MCLR linked) having reset date in July will get the benefit of the last reduction. These borrowers will see 70 basis points reduction in their home loan interest rate. For example, if someone was paying 8% on home loan last month, he will pay 7.30% from this month. This is a significant reduction for home loan borrowers and gives them some relief amid the pandemic.

If somebody has a Rs 50 lakh home loan from SBI for 20-year tenor, then his EMI will fall by around Rs 2,150 and his overall interest burden will fall by Rs 5 lakh, over the 20-year tenor.

Worth mentioning here is that home loans issued between April 1, 2016 and September 30, 2019 are linked to MCLR. With effect from October 1, 2019, all floating rate retail loans are linked to external benchmark-linked rates. 

SBI’s external benchmark is linked to RBI’s repo rate. Every time, RBI revises its repo rate, SBI’s Repo Linked Lending Rate (RLLR) will change. In this case, the transmission of RBI’s rate changes is much faster. With effect from July 1, 2020, SBI’s RLLR came down by 40 basis points to 6.65%. So home loan borrowers will see a reduction in their EMI from this month.

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