Home loan customers coming to us for a loan will be offered both options, MCLR-linked home loan as well as repo rate-linked home loan, to choose from, says PK Gupta, Managing Director, State Bank of India. Gupta during a chat with Anurag Shah, Zee Business, said, if you opt for the repo rate-linked home loan, you will see a direct impact whenever the repo rate changes. He added, in case of repo rate-linked home loan, you must repay a minimum 3 per cent of the principal loan amount every year.
A: Till date, we were receiving complaints saying why the banks don’ t changes their lending rates whenever the policy rate is changed. In response to it, the bank, earlier, linked some saving bank accounts with the repo rate. Now, we are bringing a new product under which home loan rate will be linked with the repo rate, this means that any change in the repo rate by the central bank would be passed on directly to the home loan rate. The facility will be offered only to individuals whose annual income is more than Rs6 lakhs. In addition, we are also providing an extended loan repayment period to our customers in which the customer will have to go for the repayment of up to 3 per cent annually. He/she can repay it until 30 years and, if needed, this repayment period can be increased up to 35 years. So, after this, I do not think that the customers will have a complain that why the policy rate changes are not visible in our home loan rates.
Q: Occasionally, the Reserve Bank of India and the government have accused the banks of not slashing their rates despite a cut in repo rate. What was the reason for it and why the decision was made after such a long gap?
A: On the liability side, we have certain products in our balance sheet, which were not linked with the repo rate to date. Our CASA deposit rates and saving bank rates have been fixed to date. There is no interest rate in the current account. The fixed deposits usually come for a period of 1-2 years old, a timeline in which the bank rate remains constant.
Secondly, the repo rate that is announced by the Reserve bank of India doesn’t bring huge borrowings to the bank. In fact, 1-2 per cent of the balance sheet was linked with the repo rate. So, if we want to offer some products especially on the asset side that is linked with repo rate then it is necessary for the bank to link some products of the liability side with the repo rate. So, the savings rate is now linked with the repo rate to a considerable extent and that is why we will be able to transfer its benefit into the asset side through the home loan product.
Q: Do the customers will have to do something to get the benefits of the scheme or every such loan will be linked with the repo rate automatically?
A: Under the scheme, the existing product will continue as it is this is an additional option. Thus, the customers have the choice where they can opt between the MCLR-linked loan or the repo rate-linked loan. So, the spread will be fixed on the date when the loan is provided to them under which the interest rate of the repo rate linked loan will change in accordance to the change in the repo rate. In the case of MCLR-linked loans, the interest rates will be changed in accordance with the change in MCLR.
Q: How a person with the ongoing/old loan can get his loan transferred to this scheme? Is there any specified limit that can be linked with the repo rate, for instance, Rs1 crore?
A: No, but we have a different criterion under which an individual with a minimum income of Rs6 lakh can only be a part of the scheme. The criteria have been specified to minimum Rs6 lakh because we think that any person who takes a loan under this scheme will have to understand the product clearly. The MCLR-linked loan provides an EMI-based repayment facility while the repayment structure is slightly different in this scheme and under it, the person will have to repay 3 per cent of the principal loan amount annually plus the interest. Initially, our existing customers will be offered an opportunity to shift his/her loan from the ongoing product to this product at a nominal charge.
Q: Do you have plans to link other loans like car loan with the repo rate in the recent future?
A: Auto loan product is a short-term loan of 5-7 years and it is provided at a fixed rate, which is market practice. So, it is a fixed EMI-based product and I don’t think that there is a need to link it with repo rate because that is not a floating rate product but is a fixed-rate product.