Even though the Reserve Bank of India (RBI) recently cut the repo rate to 5.5 per cent to make borrowing cheaper, the State Bank of India (SBI) the country’s largest mortgage lender has surprised many by raising home loan interest rates. New borrowers will now face a 25 basis point hike. This will make home loans slightly more expensive despite the central bank’s efforts to lower overall borrowing costs.

SBI has raised the upper limit of its home loan interest rates by 25 basis points. While the lower end remains unchanged at 7.50 per cent, the upper band has gone up from 8.45 per cent to 8.70 per cent. This change is likely to hit borrowers with lower credit scores the hardest, as they usually fall into the higher interest rate bracket.

Public sector banks such as Union Bank of India, Bank of India, Bank of Maharashtra, and Central Bank of India are currently offering home loans with interest rates starting from 7.35 per cent, which can go up to 10.10 per cent or more, depending on the borrower’s credit score and financial profile.

Other public sector banks may follow SBI’s lead. The repo rate was cut three times consecutively to provide relief to the public. The reduction in the repo rate by the RBI leads to lower interest rates on loans, including home loans, benefiting the public indirectly.

The bank had earlier released a report saying that the RBI’s cutting the repo rate will make home loans cheaper. The change will be felt most immediately in loans linked to the External Benchmark Lending Rate (EBLR), which account for around 60 per cent of all loans given by Scheduled Commercial Banks (ASCBs), as per the data compiled by State Bank of India (SBI) Research.

As of August 2025, SBI home loans predominantly link to the External Benchmark Lending Rate (EBLR) for new borrowers, aligning with the RBI’s repo rate plus a spread. Looking ahead, SBI warned that although lower rates benefit borrowers, banks might continue to face pressure on their profit margins. (With IANS Inputs)