State Bank of India (SBI), the country's largest government bank, has given a significant gift to customers. SBI has cut the external benchmark based rate (EBR). It has come down from 8.05 percent to 7.80 percent after the cut. It has reduced by 25 bps. The new rates are coming into effect from January 2020. SBI has decided to link all floating rate loans of MSMEs, housing, and retail loans to EBR. This will hugely benefit the customers. This is because the EMI of their home loan will come down. The interest rate on home loans will now start at 7.90 percent annually. Presently, the rate was 8.15 percent. Earlier also, the State Bank of India has given a big gift to customers in December. This month, SBI had cut the one-year marginal cost of lending rate (MCLR) by 10 bps. After this, the rate has come down from 8 percent to 7.90 percent. The new rates came into effect from 10th December 2019. Also, in November, SBI had changed the MCLR. SBI then cut five bps in a one-year MCLR. After this, the rate had come down from 8.05 percent to 8 percent.
The Reserve Bank of India had issued a circular stating that from October 2019, all personal, home, and other retail loans and loans to small businesses will be taken up under external benchmarks. However, the old loans which are already running with MCLR, base rate, or BPLR will be added later. Banks will be free to choose any kind of benchmark. RBI has set four types of benchmarks. First is the RBI repo rate. Secondly, the Central government has a three-year Treasury bill yield. Third, there is a six-month Treasury bill by the central government and the fourth is no other benchmark rate by FBIL.
It may be mentioned that last week, the Reserve Bank of India (RBI) had announced that it had not made any change in the repo rate. At the same time, the central bank had reduced the GDP projection. The repo rate remains at 5.15 percent. Let us say that the central bank decides on crucial policy rates keeping in view the retail inflation. The repo rate has been cut by a total of 135 basis points this year. For the first time in nine years, the repo rate is so low. This is the lowest level of repo rate after March 2010. The reverse repo rate is 4.90 percent, the bank rate is at 5.40 percent. In addition to the repo rate decision, the RBI had projected the GDP. According to the central bank, GDP will further decline during 2019-20 and may fall from 6.1 percent to 5 percent. This has shocked the economy.
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