SBI considers offering new fixed-floating home loan scheme

SBI was the first bank to come up with a home loan product linked to RBI's repo rate

India’s largest bank SBI will seek clarifications from Reserve Bank of India or RBI whether it can offer ‘fixed-floating’ home loan product, Press Trust of India reported, citing chairman Rajnish Kumar. This new home loan product will have fixed rates in the beginning and later it will convert into floating rates. SBI chief said there is a lack of clarity on how it can go ahead with the fixed rate products, after the RBI’s new regulations on floating rates.

From October 1, the RBI has mandated banks that new floating rate home loan products should be linked to external benchmarks like RBI repo rate. Banks can charge a spread over the benchmark. And the interest rate under external benchmark shall be reset at least once in three months.

Analysts say that the EMIs under these new schemes turn volatile, depending on the movement of the benchmark.

Hinting at the volatility in the repo rate, SBI chief, as quoted by PTI, said some home buyers may want their loan rates to be fixed.

For such buyers, it can offer a ‘fixed-floating’ product, wherein the rates are locked in for an initial period of say five to ten years, and then turns floating.

The need for making the product floating in the latter part arises out of the bank’s inability to project the liability movements in the future, he said, adding typically, home loans are for about 30 years.

Currently, SBI does not have a fixed rate home loan product. At present, SBI has a floating rate home loan product linked to its marginal cost of funds-based lending rate.

SBI also has a repo-rate linked home loan scheme. Interest rate of this home loan product is linked to RBI’s repo rate and is revised from the 1st of next month, as and when the RBI revises its benchmark rate.

SBI was the first bank to come up a repo-linked home loan product and many of its products like savings account deposits above 1 lakh is linked to repo rate.

The SBI chief said that from an asset liability management perspective, it is difficult to have a fixed rate product for a long term like 30 years. (With PTI Inputs)