SBI withdraws repo rate linked home loan scheme

The bank removed details of the repo-rate linked loan scheme from its website about a week ago.

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RBI has asked all banks to offer loans with interest rates linked to external-benchmarks from October 1.
The country's largest lender, State Bank of India (SBI), has withdrawn the repo-rate linked home loan scheme that it launched in July. The bank stated this on its official Twitter handle where it was responding to a customer's query on migrating to the repo-rate linked home loan scheme.

"Kindly note that RLLR based home loan scheme have been withdrawn. You can get the home loan migrated to MCLR based home loan," stated the tweet.



Further, the bank removed details of the repo-rate linked loan scheme from its website about a week ago. As of now, the bank is lending only on marginal cost-based lending rate (MCLR).

ET Online has mailed the bank and is awaiting their response.

Will SBI launch a new scheme?
It is expected that the bank will introduce a new loan scheme with interest rate linked to external benchmark by October 1, 2019. The Reserve Bank of India has mandated all banks to offer loans with interest rates linked to external-benchmarks from October 1, 2019. These are:

1) RBI's repo rate
2) Government of India 3-month treasury bill yield
3) Government of India 6-month treasury bill yield
4) Any other benchmark market interest rate published by the Financial Benchmarks India
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Therefore, in order to comply with the RBI diktat, SBI is bound to launch a new loan scheme on these lines. Additionally, it may be mentioned that it was the first PSU bank to launch a loan scheme with interest rate linked to an external benchmark which was the repo-rate.
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SBI's old repo rate linked home loan scheme
It may be recalled that SBI was the first bank to launch a repo-rate linked loan scheme back in July. The bank had introduced repo-linked lending rate for home loans from July only for new customers. The Economic Times had also reported that the bank was mulling offering repo-rate linked home loans for existing borrowers as well.

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"SBI's repo-linked lending rate (RLLR) had a 2.25% mark-up over the repo rate, which was 5.40% at present. So, RLLR was 7.65%. Then there was a spread of 40 basis points and 55 bps above the RLLR. So, new borrowers could avail themselves of home loans from SBI at 8.05% or 8.20% per annum," said another Economic Times news report. These rates were effective from September 1, 2019. One basis point is equal to one-hundredth of one percent.

After SBI, many other public-sector banks have launched repo-rate linked loan products. These include Bank of Baroda, Syndicate Bank have followed suit, while other PSBs like Union Bank of India, Canara Bank, Central Bank of India and Allahabad Bank have announced plans to launch such products.

Clarifications sought by SBI
SBI's chairman, Rajnish Kumar has said that the bank is seeking clarifications from RBI on whether it can offer long-term home loans with fixed rates in the beginning and convert the same into floating rates later, PTI reported. "There is a lack of clarity on how the bank can go ahead with the fixed rate products, after the RBI's new regulations on floating rates."

Kumar also said that some home buyers may want their loan rates to be fixed. "For such buyers, it can offer a 'fixed-floating' product, wherein the rates are locked in for an initial period of say five to ten years, and then turns floating," he added.

With October 1 just around the corner, we will have to wait and watch to see what kind of external benchmark linked loan product the country's largest lender will come out with now.
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