State Bank of India (SBI) has raised the spread, or the risk premia, on its floating rate home loans that are linked to the repo rate, pushing up the effective rates on these loans even as it reduced its marginal cost of funds-based lending rate (MCLR) on Thursday by 15 basis points across all tenors.

SBI uses the RBI’s repo rate as its external benchmark for all floating rate loans in the MSME, housing and retail segments from October 1, 2019, after the RBI mandated all banks to link a certain category of loans to an external benchmark-based interest rate.

The country’s largest bank had an external benchmark rate of 7.05 per cent to which it charged a spread, or risk premia, of 15-50 basis points across various loans. This has now been increased 20 basis points. The benchmark rate, however, remains unchanged at 7.05 per cent.

As a result of these changes, a customer taking an SBI home loan will have to pay an effective rate of 7.40 per cent (external benchmark plus 35 basis points) for a floating rate loan of up to Rs 30 lakh. Earlier, the effective rate stood at 7.20 per cent.

For loans above Rs 30 lakh and up to Rs 75 lakh, while the effective rate stood at 7.45 per cent in April, the latest revision will mean that it will rise to 7.65 per cent as the spread has been raised 60 basis points.

In April, the lender had slashed the external benchmark rate by 75 basis points after a similar cut by the RBI in the repo rate. For loans above Rs 75 lakh, the effective rate will stand at 7.75 per cent.

The new rates came into effect from May 1, according to information available on its website. The tweaks in the risk premia will not affect lenders of home loans based on MCLR.

SBI did not give any reason behind the rise in the risk premium. Analysts said it was an indication of growing risk of loans because the coronavirus pandemic has affected the income of several individuals.

This trend has already been seen in the bond markets after Tata Motors announced that it is withdrawing a non-convertible debenture issue due to higher cost expectations from the market participants.

Observers pointed out that while there could be an increase in risk perception for borrowers, the key question is whether SBI will reduce the risk premia once the situation was back to normal.

SBI also increased the spread for its personal loan against property (P-LAP) by 30 basis points. The effective rate for P-LAP up to Rs 1 crore has been raised to 9.20 per cent as against 8.90 per cent as on April 1, 2020. For loans above Rs 1 crore and up to 2 crore, the effective rate stands at 9.70 per cent against 9.40 per cent earlier.