When RBI reduced the repo rate third time in a row, a few days back, many people raised the fair share of scepticism about the transmission of rate cut to customers by the banks. As rate cut can bring a huge relief for the customers who have borrowed money from the banks like home loans and those who are going to borrow in future. But, removing all doubts and scepticism, the State Bank of India (SBI) has passed on the benefit of the third rate cut by the RBI to customers.
From today onwards, SBI, India’s largest bank has reduced its lending rate by 5 basis point. One basis point is one hundredth of a percentage point. In a bid to provide relief to the customers the bank has reduced one-year marginal cost of funds based lending rate from 8.45% per annum to 8.40% per annum.
MCLR is marginal cost of fund based lending rate. This refers to the minimum interest rate of the banks below, which it cannot lend except in some cases allowed by the RBI. It is an internal benchmark and reference rate for the bank.
This rate cut by SBI has brought a broad smile on the faces of those customers who are going to opt for car loans or other retail loans as with this rate cut these loans will get cheaper. SBI in a statement said, “As a result, interest rates on all loans linked to MCLR stand reduced by 5 basis points with effect from July 10, 2019.”
It’s also noticeable that the all the banks have introduced repo rate linked home loan products from July 1, 2019. So all the customers will able to see direct impact whenever the repo rate changes.
Similar to the rate cut by the RBI, the rate cut in MCLR by the bank is also third in a row. With the today’s rate cut, the reduction in home loans since April 10, 2019 is 20 basis point. After RBI reduced the repo rate by 25 basis points, many banks revised the rate of interest on fixed deposits and several others reduced their MCLR by 5 to10 basis points.
Now the next meeting of Monetary Policy Committee meeting will be held in August and many are expecting that the RBI will go for a fourth rate cut. However, for more clarity regarding the same, we will have to wait till August when Monetary Policy Committee will announce its decision.
