SBI reduces base rate by 25 bps

MUMBAI: There is good news for home owners, car buyers and all other borrowers. A day after RBI reduced cash reserve ratio (CRR) by a quarter of a percentage point (25 basis points) State Bank of India (SBI), the country's biggest lender, cut its base rate by an equal amount.

Effective September 22, SBI's base rate will be 9.75% per annum, from 10% now, a release from the bank said. Back of the envelop calculation shows that a 25 basis points reduction in home loan rate of 20 years tenure, can reduce the EMI by about Rs 17 for every Rs 1 lakh loan. So if a homeowner has a Rs 30 lakh loan of 20 years tenure, the annual savings work out to about Rs 6,100.

"All loans linked to our base rate will benefit from this cut in interest rate," a SBI spokesperson said. "All the existing as well as new customers for home loans, car loans and all other loans which are not fixed, will benefit from this cut," the spokesperson said. Post this cut, SBI's base rate is now the lowest among all Indian banks.

Base rate is the rate of interest below which banks cannot lend to its customers, except under special situations. All regular borrowers of a bank pay rates of interest usually a few percentage points higher than the bank's base rate. For example, on home loans of up to Rs 30 lakh, SBI charged 25 basis points above its base rate, which is 10.25% now. Effective Thursday, this will come down to 10%.

The rate cut decision by SBI also came within a fortnight of it deciding to cut deposit rates, which was followed by several other banks. Industry players said the cut in deposit rates was mainly because of low pace of credit offtake, which in turn left large sums of money with the banks.

Market players believe that since SBI is the biggest player in the banking sector and is also a very competitive lender, there would be pressure on every other bank in the country to reduce their rates. A clearer picture would emerge on Thursday, when banks reopen for business after Wednesday's holiday for Ganesh chaturthi, they said.

Cheaper loans

A 25 basis points reduction in home loan rates of 20 years can reduce the EMI by about 17 for every 1 lakh loan. So, if an owner has a 30 lakh loan of 20 years tenure, the annual savings work out to about 6,100 All the existing as well as new customers for home loans, car loans and all other loans which are not fixed, will benefit from this reduction 

Source : http://timesofindia.indiatimes.com