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State Bank of India (SBI) announced on Monday it will use the repo rate as an external benchmark for its floating rate loans for MSME, housing loans and retail loans. As issued by the press release of the bank. This will be effective from 1st October. Reserve Bank of India (RBI) directing them to do so in order to ensure the speedy transmission of policy rate cuts to a borrower.
SBI was the first bank to offer a repo-rate linked loan on 1st July 2019 which was later withdrawn. In a recent announcement, SBI stated a few modifications have been made in the scheme to comply with the latest regulatory guidelines in order to be effective by 1st October 2019
Many other banks too launched this scheme with their interest rate linked to the repo rate. The repo rate linked lending home loan is a new product, while MCLR based home loans continue to be there. Repo linked home loan will depend on the loan amount, loan-to-value of the loan and the a) RBI's repo rate
b) Government of India 3-month treasury bill yield
c) Government of India 6-month treasury bill yield
d) Any other benchmark market interest rate published by Financial Benchmarks India Private Ltd.
For loan up to Rs 75 lakh, the home loan interest rate will vary between 8.05 per cent and 8.20 per cent, depending on the risk group.
The RBI also said that existing floating rate term loans sanctioned to borrowers who are eligible to prepay a floating rate loan without pre-payment charges will be eligible for a switch to external benchmark without any charges/fees, except reasonable administrative/legal costs. And the final rate charged to this category of borrowers, post switchover to an external benchmark, shall be same as the rate charged for a new loan of the same category, type, tenor and amount, at the time of origination of the loan.- Live Mint