The country’s banking system moved to new loan pricing regime on Tuesday as lenders linked their interest rates to an external benchmark. The central bank, last month, ordered that starting October 1, all lenders are required to link floating rate for retail and small business loans to an external benchmark.
While the lenders had other options like Treasury bill yields to link interest rates, most have opted for RBI’s repo rate. Several banks have announced their new interest rates based on three components — external benchmark, the spread fixed by the bank and a mark-up based on operational costs.
Also Read: Why external benchmarking won’t pinch
Here is a look at new rates offered by various banks:
State Bank of India: SBI is offering an effective rate of 8.2 percent on home loans. This is assessed by bringing together RBI repo rate of 5.4 percent with a spread of 265 basis points and a mark-up of 15 basis points.
Bank of Baroda: The bank is offering an effective rate of 8.35-9.35 percent on home loans. This includes RBI repo rate of 5.4 percent and a spread of 295 bps.
Bank of India: The bank’s home loan rate is between 8.50-8.65 percent. This will include the RBI repo rate and a mark-up of 285 bps in addition to credit risk premium based on their credit score.
Union Bank of India: Union Bank of India customers will end up paying close to 8.3 percent interest depending on their credit score. This will be calculated based on the repo rate, 285 bps spread and a credit risk premium based on their credit score.
Private banks: Private banks like ICICI and Axis Bank are charging higher spread rates, close to 350 mark, making their loans much pricey compared to state-run lenders. This would, in turn, bring the effective lending rate close to the 9 percent mark.
First Published: IST