Repo rate is the key indicator of stability or instability in the lending mechanism of banks.
Country’s largest public sector lender, State Bank of India, has said that from July 1, 2019 it will link home loan products to the Reserve Bank of India’s repo rate, the rate at which the central bank lends money to the commercial banks in country. Repo rate is the key indicator of stability or instability in the lending mechanism of banks.
With the new lending system coming into effect, the existing system of lending home loan products based on the marginal cost of funds based lending rate (MCLR) will continue to govern and the new system will run to its parallel, the bank informed. This means that the customers or home loan seekers will have an option to choose from the two types of lending rates.
The indication will send cheers among the big and small players in the home loans segment as they have been complaining that banks were not transferring the benefits of low interest rate regime to the home loan buyers. As a result, this was keeping prospective home loan buyers at a safe distance from falling prey to ‘high interest rates.’
The RBI has cut the benchmark repo rate in its three consecutive policy reviews held since February, in April and June respectively. The monetary policy committee (MPC) holds a bimonthly policy review meet to take a call on repo rate. The repo has now come down from 6.50-5.75%, which is a drop of 75 bps or 0.75%. Since former bureaucrat Shaktikanta Das has taken over as RBI governor, he has put emphasis on growth and enough liquidity in the banking system under crosshairs. In his first three monetary policy reviews, he has recommended rate cut.
It has also linked repo rate to cash credit and overdraft, which will subsequently go down. “The benefit of reduction in Repo Rate by 25 bps by RBI has been passed in its entirety to CC/OD customers (Limits above Rs 1 lakh) banking with us, with effect from 1st July 2019.” SBI the largest commercial bank in terms of assets, deposits, branches, customers and employees; is also the largest mortgage lender in the country.
From March 31, 2019, the bank has a deposit base of over Rs 29 lakh crore with CASA ratio of 45.74% and advances of over Rs 22 lakh crore. SBI commands around 35% of market share in home loans and auto loans. The Bank has the largest network of 22,010 branches in India and an ATM or CDM network of over 58,000. The number of customers using internet banking facility are more than 6 crore and mobile banking services stand at 1.41 crore.