Why Did SBI Increase Home Loan Rates by 25 Basis Points for New Borrowers?
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Synopsis
In a surprising development, SBI has increased home loan rates despite recent repo rate cuts by the RBI. This move raises questions about borrowing costs for new customers. With implications for various borrowers, the banking sector may be facing profit margin pressures.
Key Takeaways
- SBI raises home loan interest rates by 25 basis points.
- New interest rate range is 7.50 percent-8.70 percent.
- This change could impact borrowers with low credit scores.
- Other public sector banks might follow suit.
- Lower RBI repo rate does not guarantee lower borrowing costs.
New Delhi, Aug 16 (NationPress) In a surprising move, State Bank of India (SBI), the largest mortgage lender in India, has opted to raise home loan rates by 25 basis points for new customers, even as the RBI has cut the repo rate to 5.5 percent to alleviate borrowing costs.
The bank has adjusted the upper limit of interest rates from the previous band of 7.50 percent-8.45 percent to a new range of 7.50 percent-8.70 percent. This change will have a significant impact on borrowers with lower credit ratings, as the cap on interest rates has been elevated.
Other public sector banks, such as Union Bank of India, Bank of India, Bank of Maharashtra, and Central Bank of India, are currently offering loans starting at 7.35 percent and climbing to 10.10 percent or higher, based on the borrower's credit profile.
It’s likely that additional public sector banks will follow in SBI's footsteps. Despite the RBI reducing the repo rate three times consecutively to provide relief, the adjustment by SBI raises questions about the benefits of these cuts for consumers.
An earlier report from the bank had indicated that the RBI's repo rate cut would make home loans more affordable. The effects of this change are expected to be most pronounced in loans tied to the External Benchmark Lending Rate (EBLR), which constitutes around 60 percent of all loans issued by Scheduled Commercial Banks (ASCBs), according to data from SBI Research.
As of August 2025, new borrowers will primarily see their SBI home loans linked to the EBLR, which is aligned with the RBI's repo rate plus a margin.
Looking forward, SBI cautioned that while lower rates are advantageous for borrowers, banks may continue to face challenges regarding their profit margins.
Point of View
It's crucial to recognize the implications of SBI's recent rate hike. While the RBI aims to support borrowers through rate cuts, SBI's actions suggest challenges within the banking sector. This move could signify a tightening of credit access for new borrowers, particularly those with lower credit scores. The nation must remain vigilant about these developments in the lending landscape.
NationPress
07/10/2025
Frequently Asked Questions
What is the new home loan interest rate range at SBI?
The new home loan interest rates at SBI range from 7.50 percent to 8.70 percent.
How does the RBI's repo rate affect home loans?
The RBI's repo rate influences borrowing costs; a lower repo rate generally leads to lower home loan rates.
What is the significance of the External Benchmark Lending Rate (EBLR)?
The EBLR is crucial as it affects approximately 60 percent of loans issued by Scheduled Commercial Banks, including SBI.
Could other banks follow SBI's rate increase?
Yes, it is possible that other public sector banks may also increase their home loan rates in response to SBI's decision.
What are the borrowing implications for customers with low credit scores?
Customers with low credit scores may find it more challenging to secure favorable loan terms due to the raised interest rate cap.
