State Bank of India has given New Year gift to its millions of customers. The bank has reduced its external benchmark rate by 25 basis points. This will make home loans and auto loans cheaper. This deduction will be applicable from 1 January. All types of new and old customers of the bank will get the benefit.

Now, the bank will give loan to those buying new houses at an interest rate of 7.90 percent. Earlier the interest rate was 8.15 percent. The bank has reduced the external benchmark based rate (EBR) from 8.05 per cent to 7.80 per cent.

This is a base rate which is indicative that the loan rate cannot be less than this. The country's largest bank has said in a statement, "With this reduction, the loan rate will be cut by 25 basis points for existing home loan customers and MSME borrowers as well."State Bank of India (SBI) said that new home loan customers will get loans at an interest rate of only 7.90 percent. Earlier the rate of home loan was 8.15 percent.

It is important to note that only on the basis of repo rate, banks have to change their external benchmark rate once every three months. The repo rate fixed by the Reserve Bank of India is 5.15 per cent and the external benchmark rate (EBR) of SBI is linked to it, that means the bank's EBR also has to be changed when the repo rate changes.

EBR is fixed by adding 265 basis points i.e. 2.65 percent to the repo rate. In October, the Reserve Bank had cut the repo rate.

In the same month, State Bank cut its one-year Marginal Cost of Funds based lending rate (MCLR) by 10 basis points. The bank has cut MCLR for the eighth time in this financial year. SBI is the largest bank in India which has about 25 per cent stake in home loans and auto loans. Most banks have home loan interest rates of between 8 and 9 percent.