SBI Hikes Spread In New Repo-Linked Home Loan

State Bank of India increased the spread over the benchmark as India’s largest lender announced its fresh repo-linked home loans.

SBI is charging a 265-basis-point spread over the repo rate against 225 basis points it charged before withdrawing the earlier repo-based product. The effective lending rate on new home loans is between 8.20 percent and 8.55 percent for the salaried, including a premium of 15 basis points for the non-salaried borrowers, according to rates on its website. That compares with 8.05 percent earlier. Its marginal cost of funds-based rate was 8.15 percent.

SBI has the cheapest home loan rates among mortgage lenders and banks. The rate differential ranges from 20-105 basis points.

Margin Pressure Building?

While SBI’s net interest margin has risen in the past four quarters, its higher spread could point to margin pressure building up as the RBI is expected to lower the repo rate further.

Morgan Stanley acknowledged as much. “We have reduced our FY20 and FY21 margins assumptions ~10 bps each, driven by a move to repo-linked loans in housing,” it said in a note. The relatively slow recovery process could also weigh on NIM improvement as they would have contributed directly to margins, Morgan Stanley said.

Margins of housing finance companies could also come under pressure as they cut rates because of competition.

Keki Mistry, vice-chairman and chief executive officer at Housing Development Finance Corporate Ltd., told told BloombergQuint earlier that the mortgage lender may voluntarily link its rates to the repo.

JM Financial said in a note, “Given challenges in the developer/real estate sector, higher proportion of retail in loan mix and now, higher competitive intensity due to effective base rate regime, the housing finance companies could witness pressure on margins especially for players focussed on the salaried segment.”