MUMBAI: Home loans by the country's largest lender will no longer be the cheapest.

 State Bank of India has

increased its benchmark lending rates by 25 basis points-a move which will make all loans, including home
loans and most loans to corporates, more expensive. 

With effect from April 25, the country's largest bank will increase both its benchmark prime lending rate and its
base rate. The BPLR, which is the benchmark for all its old floating rate loans, has been increased from 13% to
13.25%. The base rate, which is the benchmark for loans in recent months and for future loans, has been
increased from 8.25% to 8.5%. This means that home loans will go up for both existing and new home loan
customers. 

A 25 basis point rise would result in the equated monthly instalment on a loan rising by around Rs 17 for every
Rs 1 lakh. SBI offers home loans up to Rs 30 lakh at the rate of 10% and loans above Rs 30 lakh at 10.25%.
However, under its special rate scheme, loans up to Rs 30 lakh are available at 9% for year one, 9.75% for year
two and three and 10% for subsequent years. Similarly, loans above Rs 30 lakh are available at the same rates of
9% and 9.75% for the second and third year and 10.25% for subsequent years. 

Although interest on the first year and even second and third year are cheaper than other lenders, the average
cost of a long-term loan would work out close to HDFC which charges 9.75% and 10% for loans up to Rs 30 lakh
and loans above Rs 30 lakh. Incidentally the increase in the base rate will also increase the cost of borrowing for
HDFC since the housing finance company borrows fund from SBI. 

The flexibility for banks to fix interest rates on loans has come down substantially after RBI introduced the base
rate system. Unlike the earlier prime lending rate or PLR, which was an arbitrary benchmark, the base rate is
calculated according to a formula which takes into account the cost of funds. According to Melwyn Rego,
executive director, IDBI Bank, if Reserve Bank of India hikes interest rates by 50 basis points in its monetary
policy in the first week of May, banks may revise their base rates again. Almost all lenders have factored in a 25
basis point hike in policy rates in May given the spike in inflation. But at the same time, there has been some
improvement in the liquidity situation which is reflected in the reduction in the daily borrowings by banks from
RBI under its liquidity adjustment facility. 

A number of banks have also reduced their deposit rates in some slabs. These include Central Bank, Oriental
Bank of Commerce, UCO Bank and Dhanlaxmi Bank.