The markets are soaring as the monetary transmission of the RBI’s 50 bps rate cut has started. One of the most aggressive base rate cuts came in from the State Bank of India, which cut rates by 40 basis points. But over the weekend there was sobering news from the SBI on the home loan side — the mortgage rate cut is only going to be 20 basis points. Bloomberg TV India discusses with Arundhati Bhattacharya, Chairperson of SBI, the reason why home loan rates could not be slashed beyond a point now.
While the markets are very excited about the fact that banks are finally looking at spreads and getting the elbow room to look at spreads, home buyers are understandably upset, saying they might not get the full benefit of the base rate cuts. What was the rationale behind it?
Let me first say that what is missed out is that we are currently the lowest rate in the mortgage market at 9.55 per cent. That is the first thing.
Second, I think people need to very clearly understand that of all the existing rates, the 40 basis points will in any case be passed through. What is missed out is that in 2013, when the great increase stopped, at that point of time the SBI was lending to home loan borrowers at 30 basis points above the base rate.
Today we are going to charge 25 basis points above the base rate, which means that while the base rate has been cut by 70 basis points, home loan owners actually have been passed on 75 basis points.
What had happened was, in 2011-12, the rates at which banks were lending to home loan owners was actually 100-125 basis points above the base rate. So there was a spread with the base rate.
Now, on account of the fact that the home loan portfolio held on well, and also because there was terrific competition, this spread actually came down over a period of time.
As I told you, in 2013, it was 30 basis points. In 2015 beginning, we actually brought it right down to the base rates on account of the huge competition. Now, because this time the base rate cut has been quite huge at 40 basis points, we have currently passed on 20 basis points to new home loan owners, not to the old ones.
The old ones will get the full cut but for the new ones we have passed on 20 basis points.
But again you have to understand that going forward, there will be sufficient space for us, if necessary, to bring this down further.
Currently, we are the cheapest in the market at 9.55 per cent, and that is really not very high at all considering the fact that two years back it was much higher.
So I think you need to take it in perspective rather than say that the 40 basis points have to immediately get transmitted to the new buyers.
Just a clarification — the existing home loan buyers will get a full transmission of 40 basis; it is only the incremental loan buyers who will get 20 per cent above base rate. Right?
Existing borrowers automatically get the rate cut passed on from October 5. For the existing borrowers, the 40 basis points cut gets passed on from October 5 on account of the fact that the base rate itself has been cut by 40 basis points.
What happened in April of this year was, when the base rates were not coming down so much in order to make it cheaper for home loan borrowers, we had actually taken out the spread over home loans.
As I told you the spread that we were having was 30 basis points. So we had narrowed that and brought it down to pure base rate. Now, when the base rate cut has been huge again, some little spread has been put in with the view that going forward we will see how things progress.
Then, if we find that it is important and it is necessary, we will definitely cut the rates of the spreads again.
At this point of time, again I would like to reiterate that as against the 70 basis point pass through a base rate, the home loan borrowers have actually got 75 basis point pass through.