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Bank of Baroda, others cut rates on home loans

Home loans are set to turn cheaper with state-run Bank of Baroda on Monday lowering its rate to as low as 8.35% — the lowest across industry — while some other lenders including Allahabad Bank and Bank of Maharashtra also cut their rates for housing and other loans.

Smaller private sector player Sundaram BNP Paribas Home Finance also announced a reduction in its rate for new housing loans with effect from Tuesday.

State-run Bank of Baroda (BoB) reduced its home loan rates by 70 basis points to 8.35%, which will be applicable for customers having a strong Cibil score.

At 8.35%, the rate is lower than industry leader State Bank of India’s 8.50% offer.

SBI and some other lenders, including private sector major HDFC Ltd, have already reduced their rates. Some experts have attributed reduction in interest rates to surge in deposits with the banks post demonetization.

BoB said its existing customers whose loans are linked to base rate can also switch to the new MCLR regime without any additional charges. However, several other lenders are charging a switchover fee, which is a minimum of Rs 10,000 or 0.5% of the outstanding loan amount in case of SBI.

Bank of Maharashtra has cut its benchmark MCLR (Marginal Cost of Funds based Lending Rate) by 30 bps effective January 7. It’s one-year MCLR is set at 8.95%.

Allahabad Bank said it has reduced its MCLR by 0.85% to 8.60% for 1 year tenor. With the reduction in this benchmark rate, home, car and other loans linked to MCLR would become cheaper.

Banks have switched to MCLR as their new benchmark lending rate from June last year, replacing the base rate system for new borrowers. It is calculated on the marginal cost of borrowing and return on net worth for banks. It was introduced by RBI to ensure fair interest rates to borrowers as well as banks.

However, some banks charge a premium over the MCLR to offer a loan.

lso seeks to address the regulator’s primary objective of expediting monetary policy transmission along with augmenting uniformity and transparency in the calculation methodology of lending rates. MCLR rates are revised every month.

In case of BoB, the MCLR has been reduced by 55-75 basis points across all tenors effective January 7. “The home loan rate is linked to their Cibil scores. A customer with a Cibil score of 760 and above will be offered the lowest rate of 8.35%,” a bank official said.

On a home loan of Rs 50 lakh, the 70 bps reduction will translate into a saving Rs 2,496 a month and around Rs 9 lakh for a 30 year loan.

The bank’s one-year MCLR, to which all home loans are linked to is also at 8.35%. SBI’s one year MCLR is 8% at present.

The official said the highest home loan rate would be at 9.35%. The new rates would be applicable to all loans sanctioned with effective from January 7. He said the new rate will be floating and will change with the next review in the MCLR after one year. BoB’s current base rate is 9.60%.

Home loan borrowers of other banks or housing finance companies can also shift to BoB’s reduced rate of interest but the bank is yet to decide on the loan switching fee, he said.

The bank’s interest rate on car loans and mortgage loans also starts from 8.85% and 10.35%.

Sundaram BNP Paribas Home Finance said its rate of interest for new housing loans would become 8.70%, down from existing 9.20%. “The company hopes that this (move) will help in reviving the sluggish real estate market”, Sundaram BNP Paribas Home Finance, Managing Director, Srinivas Acharya said.