Home loans may get costlier as SBI hikes rate by 5 bps

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MUMBAI: Existing home loans from the State Bank of India (SBI), the country’s largest lender,
will get marginally expensive with the bank increasing its base rate to 8.70%, up 5 basis points (bps),
from 8.65%, in what analysts see as a first sign of gradually hardening interest rates. A basis point is
one-hundredth of a percentage point.
This is the first increase in the base rate in five years. The bank has also increased its benchmark
prime lending rate (BPLR) by 5 bps to 13.45% from 13.40%. The last rate increase in both base rate
and BPLR was in 2013. Since then, rates have been on a downward trajectory. “Around 20-25% loans
in the industry are still linked to base rate,” said Udit Kariwala, associate director-financial
institutions, India Ratings and Research.
SBI attributes the base rate hike to the increase in term deposit rates. “The marginal increase in
base rate is due to the upward movement in term deposit rates. As the cost of deposits goes up, it
reflects on the base rate as well,” said PK Gupta, managing director, SBI. Last week, SBI hiked 2-10
year retail term deposit rates by 10-25 bps due to tight liquidity (shortage of cash) in the banking
system. This was the second hike in deposit rate in the past one month.
“Deposit growth has come off in the last couple of quarters. With credit growth showing some
green shoots (though not driven by capital expenditure) and deposit growth being tepid, banks are
repricing deposits. In general, in a credit growth scenario, the pricing power of banks tend to go up,”
said Kariwala.
Home loans taken before April 2016 and after July 2010 were linked to base rate. From April
2016, all home loans offered by banks are linked to marginal cost of funds-based lending rates
(MCLR).