SBI loans connected to external benchmark lending rates will become cheaper from January 1, 2020, as the country’s largest lender on Monday cut its external benchmark-based interest rates by 25 bps.

The move will reduce SBI's external benchmark rate to 7.8 percent per annum from 8.05 percent previously.

"With this reduction, interest rate for existing home loan customers as well as MSME borrowers who have availed loans linked to External Benchmark Based Rate would come down by 25 bps," said SBI in a statement.

The bank said its new home loans will offer interest rates starting from 7.9 percent from January 1, compared to 8.15 percent earlier.

State Bank had in September said that it adopted repo rate as the external benchmark for all floating rate loans for medium, small and macro enterprises, housing and retail loans as notified by the Reserve Bank of India on September 4.

The repo rate is the rate at which RBI lends money to banks.

The central bank made it mandatory for banks to link retail loans like housing and automobile loans to an external benchmark. According to an RBI circular, the banks are free to choose one of the several indicated benchmarks.

Earlier in December, SBI had also deducted its one-year MCLR by 10 basis points, in its eighth consecutive cut in MCLR in the fiscal year 2019-2020.

With the latest cut, SBI's one-year MCLR comes down to 7.90 percent per annum from 8 percent with effect from 10th December 2019.

First Published:Dec 30, 2019 9:39 AM IST