The State Bank of India at present does not have any fixed rate home loan option and it offers floating rate home loans that are linked to the marginal cost of fund based lending rate and repo rate of RBI. The largest bank in India will be seeking clarifications from the RBI whether it will be able to offer fixed- floating home loan products or not. This new home loan product will have fixed rates at the beginning and it will later convert to floating rates. According to SBI chief, it is still not clarified whether they will be able to do this because of the current floating rates regulations by SBI.
The RBI has also stated that from 1st October that the banks will be required to offer new floating rate home loan products linked to the external benchmarks like the RBI repo although banks can charge a spread over the benchmark. The interest rate under external benchmark shall also be reset at least once in three months. According to the analysts, the EMIs under the new scheme will be turning volatile depending on how the benchmark shifts.
What else to know
According to some home buyers, they might want a fixed home loan rate and the volatility of the repo rate might affect them. The buyers can make use of the fixed- floating product by which they can have a fixed rate of interest for the first five to ten years after which it turns to floating interest. The reason why the interest rates will turn floating in the latter parts is because the banks will not be able to predict the movement so far into the future, for example, if someone takes a loan for 30 years. As mentioned earlier, the repo rate linked home loan scheme is revised from the 1st of the next month as and when the RBI benchmark rates are revised.
SBI was one of the first banks to come up with a repo- linked home loan product and a lot of other products like savings up to INR 1 lakhs are linked to the repo rate. From an asset liability management perspective, the SBI chief opined that it will be difficult to have a fixed rate home loan rate for a long period like 30 years.