SBI repo-linked home loan vs Bank of Baroda (BoB) repo-linked home loan: Key things to know

After India's biggest bank State Bank of India (SBI) launched India's first repo-linked home loan product in July many banks including Bank of Baroda have also come up with repo-linked home loan offers. Under this repo-linked home loan product, the effective home loan rates are linked to the banks' repo-linked lending rate, which in turn is linked to the RBI's repo rate. The government has asked banks to come up with repo-linked loan products for faster transmission of Reserve Bank's rate cuts to borrowers.

The interest rate of SBI's repo-linked home loan starts from 8.05% while the interest rate of Bank of Baroda's repo-linked loan from 8.35%. When the RBI changes the repo rate, the interest rate of these products change automatically.

The interest rate of SBI's repo-linked home loan is based on the bank's repo rate lending rate (RLLR) which is currently at 7.65%. SBI's repo-linked lending rate is fixed 225 bps over RBI's policy repo rate (currently at 5.4%) which works out to be 7.65% (repo rate of 5.40% or 540 bps + 225 basis points).

SBI then charges a spread of 40 bps to 55 bps above its RLLR, depending on the borrower's credit score for home loans up to ₹75 lakh. This spread increases to 95 bps to 110 bps for home loans above ₹75 lakh.

In case of SBI's repo-linked product, the RLLR changes from the first day of the following month of RBI's rate revision. For example, RBI cut repo rate by 35 bps on 7th August and accordingly SBI's RLLR changed from September 1.

Bank of Baroda, India's second largest public sector bank, last month introduced a new variant of home loan product linked to RBI's repo rate. New Bank of Baroda home loan customers get the option to select between MCLR-linked rate, which is indexed to the bank’s cost of funds or a repo rate linked to RBI's repo rate.

Currently, Bank of Baroda's repo-rate home loans start from 8.35%, which is 295 basis points above the RBI's repo rate. Bank of Baroda may charge up to 100 basis points more depending on the risk profile of the borrower.

Experts say that when RBI cuts its benchmark rate, repo rate-linked home loan schemes offer the benefit of immediate transmission of rate cuts as compared to MCLR-based home loans. But in case when RBI increases rates, home loan rates go up faster as compared to MCLR-based rates.