Why Has SBI Increased Home Loan Rates Despite RBI's Repo Rate Cut?

The State Bank of India (SBI) recently revised its rate of interest for the home loans offered to the customers. Known to have begun on August 1, 2025, the move is supposed to impact home loan borrowers including the new ones and many of the existing ones too.

The news comes amid Reserve Bank of India's decision of keeping the lowered repo rate unchanged at the August's monetary policy review. The rate hence still stands at 5.5%.

Read further to know the new range set by SBI. Also understand why SBI has taken this measure and who it's going to affect.

The New SBI Home Loan Interest Rates

The interest rate for home loans from SBI used to range between 7.50% and 8.45% earlier. After the recent update, the upper limit has been changed to 8.70%. Hence, there has been an increase of 25 basis points in the interest rate.

As is obvious, the shift is expected to raise the EMIs for home loan borrowers at SBI. The final rate of interest, though, will also depend on several other factors, like your credit score and the amount of loan you are borrowing.

Reasons Why SBI Increased the Home Loan Rates

There are various aspects related to the home loan rate increase by the SBI amid unchanged repo rate by the RBI.

Widening Spreads So as to Protect Profitability

SBI, along with several other lenders, are in the news for raising their spreads/margins in order to shield the net interest margins (NIMs). The banks could be doing so to maintain their profitability levels, as the cost of funds does not appear to be going down soon. State Bank of India could hence be tightening spreads for the purpose of stabilizing margins as the rates are cut.

Rising Margin Pressures

Repo rate is being cut down. This typically leads to reduced costs of borrowing for the banks. However, the banks are still required to make payments to the depositors. Now, if they choose to increase the deposit rates for retaining funds, the costs of funds will stay high. Hence, for these reasons, banks have to remain cautious when reducing the lending rates and wait until the deposit rates are adjusted.

Resetting Market Pricing Norms

PSU banks like the SBI have been known to price home loans aggressively at a time. They did so to attract borrowers, where they even went with unsustainably low rates. Several companies like the HDFC have found this irrational. Now, the banks might be making the moves to reset their market pricing terms.

The RBI cut the repo rate finally to 5.5% by 50 basis points in June, 2025. The central bank has not since hinted any further rate cuts.

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SBI Increased Home Loan Rates – Impact on Borrowers

The hiked interest rates by SBI for home loans will be impacting the borrowers directly. Now the individuals who plan taking a home loan from SBI may have to pay higher Equated Monthly Instalments (EMIs).

There can be various other ways in which the borrowers are influenced. As we discussed, the lower cap of the interest rate range has been kept unchanged. It is also known that when the borrower has a good and high credit score, s/he has higher chances of getting a lower interest rate by the lender. Hence, the recent move by the SBI may not bring any significant change for those with high creditworthiness, as they might still be charged 7.50% on the home loan.

However, for those with low credit scores, the rate hike may increase their monthly EMI repayment burden. The borrowers will be paying more every month and in the overall loan repayment tenure.

Besides the credit score, the loan amount also contributes in deciding and finalizing the home loan interest rate for a borrower.

Final Thoughts

SBI seems to be taking a very cautious step after the RBI's decisions on repo rate. In such a scenario, what the borrowers can do is compare the terms attached with home loans from various banks to get to the most economic and feasible choice.

The State Bank of India appears to have taken a step of market significance, as it might encourage the competitors to follow suit.

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