Public sector lender Bank of India has reduced marginal cost of funds based lending rate (MCLR) by 10 basis points (bps) for maturities up to six months.

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The bank has also reduced interest rates on housing and auto loans. With this, housing loan interest rates will now be starting from 8 percent per annum while vehicle loans will be available from 8.50 percent per annum.

This reduction will be effective from February 10, the bank said in a statement.

State Bank of India (SBI), the country's largest lender, has also announced a reduction in its MCLR by 5 bps across all tenures. With this announcement, MCLR will come down to 7.85 percent per annum from 7.90 per annum, with effect from February 10, 2020.

The announcement by SBI came a day after RBI kept the repo rate unchanged at 5.15 percent in its February policy.

This is the ninth consecutive cut in MCLR by SBI in the current financial year. The bank has slashed the MCLR by 70 bps between February 2019 and February 2020, according to the information available on its website. In December 2018, SBI's 1-year MCLR was 8.50 percent, while in December 2019, it came down to 7.90 percent.

Earlier, ICICI Bank and HDFC Bank had also cut the MCLR. With this, HDFC Bank and ICICI Bank one-year MCLR rates stand at 8.15 percent and 8.2 percent, respectively.

What lower MCLR means for customers

A lower MCLR means the EMI or the tenure of the loan will see a fall. This means loan rates will become cheaper for the borrower. However, the impact is not immediate. There is a reset-period for MCLR based home loans, after which the rates get revised for the borrower. Banks generally offer a rest period of six months or 1 year.

Borrowers whose reset date comes in February or March 2020 are likely to benefit from the recent announcement by SBI, according to experts.

The actual effective home loan interest rate also depends on the loan amount, tenure and other factors.

First Published:Feb 7, 2020 7:55 PM IST