SBI gives new year gift to existing borrowers, cuts base rate by 30bps to 8.65%

State Bank of India (SBI)

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India's largest bank State Bank of India has given a new year’s surprise to its customers by reducing lending interest rate by 30 basis points (bps) to 8.65 percent with effect from January 01, 2018.

Around 80 lakh borrowers are likely to benefit from this reduction. “Base rate reduced from 08.95% p.a. to 8.65% p.a. w.e.f. 01.01.2018,” SBI said on its website.

Base rate is the minimum lending rate below which banks cannot lend.

Additionally, bank has decided to extend on-going waiver on home loan processing fees till March 31, 2018 for new customers keen on buying their dream house and other customers looking to switch their existing loans to SBI.

The bank has also reduced BPLR (Benchmark Prime Lending Rate) from 13.70 percent to 13.40 percent.

This may not make a huge impact on the bank but will help a large number of customers who have borrowed loans at base rate (prior to April 2016).

SBI had last reduced its base rate by five basis points from 9 percent to 8.95 percent in September. This was followed by Bank of Baroda and Andhra Bank among others.

P. K. Gupta, Managing Director - Retail and Digital Banking, SBI said, " The reduction in base rate is a new year gift to the bank's loyal customers as a large number of consumers who have their loan linked to base rate will be benefited by decrease in rates. This reduction is part of bank's efforts to ensure transmission of reduction in the policy rates in the recent past. Approximately 80 lakh customers will be benefited by this move."

Though the lender has retained its MCLR — or the marginal cost based lending rate — which is the new rate applicable to the borrowers since April 2016.

However, while banks have migrated to the MCLR system and customers under base rate also shifting to MCLR since then, a substantial proportion of loans, particularly retail loans, remains linked to the base rates.

One-year MCLR continues to be at 7.95 percent and overnight rate at 7.70 percent while three-year rates stand at 8.10 percent, according to the lender’s website.

In order to bring more transparency in transmission of interest rates, the Reserve Bank of India has also suggested that interest rate on loans be pegged to external benchmark rates arrived at by market trading rather than leaving it at the discretion of each bank which appear to be coming up with some formula that would defy the best rates for most customers.