State Bank of India cut the effective rate from 9.10% to 8.6% and its one-year Marginal Cost of Lending Rate (MCLR) - the benchmark linked to home loans - from 8.9% to 8%.
SBI kept the spread above MCLR at 60 basis points against 20 basis points.
Private banks also expected to lower rates
Home loans up to Rs.75 lakh, earlier given by SBI at 9.1%, would now be given at 8.6%; 8.65% is the rate for other banks.
Punjab National Bank and Union Bank of India also cut rates while private banks are expected to do so.
The rate cut signals demonetization's benefits in the form of record-high deposits being shared with the poor and middle classes.
PM Modi's affordable home loan scheme
The reduction in housing rates by several public banks would make available the affordable home loan scheme, announced by PM Narendra Modi, at 4% (or little higher) for those seeking loans of up to Rs.9 lakh. The scheme's details are yet to be announced.
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The reduction in MCLR indicates cheaper rates
Home loans are linked to one-year MCLR, the rates are locked-in for 12 months.
Older borrowers would enjoy the benefit of new rates only after the end of their one-year lock-in.
The EMIs of loans availed before Apr'16 would be linked to earlier benchmark; these borrowers need to enter into a fresh bank contract (by paying a fee) to get loans linked to MCLR.
EMI cheque smaller than rent cheque?
Indiabulls Housing Finance Vice-Chairman & MD, Gagan Banga, said subsidized home loans would find many borrowers as EMI cheque would now be much smaller than the rent one. He added, "This is a tremendously positive announcement to realize the 'Housing for All' objective."
HDFC Bank cuts lending rates
On Wednesday, HDFC Bank cut its lending rate by 0.90%, joining over 12 banks and housing finance companies that have decreased their lending rates in the last few days.
Executive Director Kaizad Bharucha said the primary reason behind doing this was liquidity in the system brought by demonetization.
New rates will be effective 7th January, 2016 onwards.
SBI home loan interest rates slashed by 0.25% from tomorrow
SBI has announced a 0.25% cut in interest rates for affordable home loans under Rs. 30 lakh.
SBI managing director for national banking Rajnish Kumar said "This a huge saving for the borrower as the 25 bps reduction translates into a saving of Rs. 530 per month on EMIs."
The rates will be applicable from 8 May.
SBI cuts interest rate on home loans to 8.6%
SBI has now slashed down the interest-rate of home loans above Rs. 75 lakh by 10 basis points. From June 15, the rate for the same will be 8.55-8.6%.
Previously, SBI had slashed interest-rates up to 25 basis points on home loans of Rs. 30 lakh or less which now stands at 8.35% and a cut of 10 basis points for those above it.
Prime Minister Awas Yojana
State Bank of India (SBI)