State Bank of India (SBI) on Wednesday cut its base rate by 5 basis points (bps) to 9.70%, effective February 4, in a move that will make loans cheaper for all its customers. On Tuesday the Reserve Bank of India had cut the policy rate and the cash reserve ratio (CRR) by 25 basis points each. This is the first time since March 2011 that interest rates on SBI's home loans rates will fall below 10%.
SBI's base rate is now in line with HDFC Bank's base rate, which is the second-lowest in the industry after Royal Bank of Scotland which has a base rate of 9%. SBI had last cut its base rate by 25 bps to 9.75% in September last year.
The base rate is the rate of interest below which banks cannot lend to its customers. A cut in the base rate implies that all borrowers, both existing and new, will benefit from lower rates. Borrowers pay interest a few percentage points higher than the bank’s base rate. For instance, in the case of home loans of up to R30 lakh, SBI charges 25 bps above its base rate, which is 10% now.
This will therefore now come down to 9.95%. The bank has also cut the processing fees on home loans by 50%. According to an SBI official the bank’s total home loan portfolio stood at around Rs 1,13,000 crore as on December 31.
SBI is the third bank to lower the base rates after the RBI on Tuesday cut both the repo rate and the CRR by 25 bps, releasing at least Rs 18,000 crore into the system. IDBI Bank and Royal Bank of Scotland on Tuesday also cut their base rates by 0.25 bps and 75 bps to 10.25% and 9%, respectively.