SBI Just Hiked Home Loan Rates: What's Really Going On?

If you've been keeping an eye on the home loan market, you might have felt a bit of a jolt recently. In a move that caught many by surprise, India's largest lender, State Bank of India, decided to increase its home loan rates. Effective from August 1, 2025, they've bumped up the upper band of their rates by 25 basis points, a decision that seems to be setting a new tone for the entire industry.

Key Highlights

• ✓ State Bank of India (SBI) increased its home loan interest rates by 25 basis points for new borrowers.
• ✓ The new interest rate band for SBI home loans is now 7.50% to 8.70%, up from a previous high of 8.45%.
• ✓ This change primarily impacts new loan applicants with lower CIBIL scores.
• ✓ The move comes despite the RBI's repo rate being at a low 5.5% and after a period of aggressive pricing by public sector banks.
• ✓ Public sector banks' market share in new home loans grew to 43% in FY25, up from 34% in FY22.

This isn't just a minor tweak; it's a signal that could mean the era of rock-bottom interest rates is starting to shift, especially for certain borrowers. Let's dive in and unpack what's really happening here.

The Nitty-Gritty of the New Rates

So, what does this rate hike actually look like on paper? For starters, SBI's regular home loan rates, which were in the range of 7.5% to 8.45% in late July, are now set between 7.5% and 8.70%. Notice that the lower end hasn't changed—the entire increase has been loaded onto the upper band. This is a targeted move, aimed squarely at new borrowers who have lower credit scores.

And SBI isn't alone. Union Bank of India has also nudged its rates up to 7.45% from 7.35%. This coordinated action from two major public sector banks suggests we could see others follow their lead. It's important to remember, though, that an inside source confirmed this change only applies to new customers. The massive ₹8 lakh crore of existing, outstanding home loans won't be impacted.

To put this in perspective, let’s talk real money. If you were to take a ₹50 lakh home loan for a 20-year tenure, the old rate of 8.45% would have meant a monthly EMI of ₹43,233. At the new rate of 8.70%, that same EMI jumps to ₹44,026. While a difference of ₹737 per month might not sound like a fortune, over a 20-year period, it really adds up, increasing the total interest paid significantly.

💡 What's Interesting: A person familiar with the matter stated, "This is a low-yielding product for us, so we've decided to increase margins on new loans for borrowers with low credit scores." This reveals the hike is a direct strategy to boost profitability, not a reaction to broader economic shifts.

Why Now? The Puzzle of Rising Rates in a Low-Rate World

Here's the part that's a bit of a head-scratcher. These rate hikes are happening at a time when the Reserve Bank of India's repo rate is at a comfortable 5.5%. In fact, the RBI had cut the repo rate by a cumulative 100 basis points and recently decided to keep its key benchmark rates unchanged in its August 2025 Monetary Policy announcement. So, if the central bank isn't raising rates, why are the commercial banks?

The answer, it seems, boils down to profitability. For a while now, public sector banks have been on a mission to expand their loan books, often through extremely aggressive pricing on home loans. This strategy, while great for attracting customers, puts a serious squeeze on their net interest margins. Private banks have been vocal about this, calling the strategy "irrational pricing" and arguing that chasing growth at the expense of profit is simply not sustainable.

As Asutosh Mishra, a lead analyst at Ashika Stock Broking, puts it, "The industry is feeling the pinch amid a downward interest rate cycle and mounting pressure on net interest margins." He suggests that raising rates on specific products like this is a way for banks to generate extra income and improve their returns. It's a strategic pivot away from pure volume toward more profitable lending.

The Private Sector's Frustration

You can really feel the tension between the public and private banking sectors. Srinivasan Vaidyanathan, the Chief Financial Officer at HDFC Bank, didn't mince words during a post-earnings call. He noted, "We continue to see very low rates. In many top cities, mortgage rates are being advertised at 7.2% to 7.3%, levels not seen in recent years." HDFC Bank, wanting the "right kind of customer," has chosen to be more selective rather than join the price war.

This cautious approach is reflected in their numbers. For FY25, HDFC Bank's home loan book grew by 8%, while competitors like ICICI Bank saw 11% growth. But even that was a slowdown for ICICI, which had seen 14.2% expansion a year earlier. Meanwhile, public sector banks were posting huge numbers, with SBI growing its portfolio by 14%, and Bank of Baroda and Punjab National Bank each posting an impressive 18% growth.

A Shifting Market Landscape

The aggressive pricing strategy from government-owned banks has had a dramatic effect on market share. Data from the credit bureau CRIF Highmark is incredibly revealing. Over the last few years, the share of new home loans by value for public sector banks shot up from 34% in FY22 to a dominant 43% in FY25. During that same period, private banks saw their share tumble from 42.6% to just 29.8%.

However, this rapid expansion came at a time when the overall market was cooling off. According to RBI data, total home loan growth slowed dramatically to 9.6% in the year ending June 2025. That's a massive drop from the blistering 36.3% growth recorded in the previous year. This slowdown, combined with the pressure on profitability, is likely the key driver behind SBI's decision to finally tap the brakes and raise its rates.

Making Sense of Mixed Signals: MCLR vs. EBLR

Just to add another layer of complexity, around the same time as this home loan rate hike, several public sector banks, including SBI, Bank of Baroda, and Indian Overseas Bank, announced they were reducing their Marginal Cost of Funds-based Lending Rates (MCLR). So, are rates going up or down? The key is understanding the two different systems.

The MCLR system was introduced back in 2016. However, to make rate changes from the RBI transmit faster to consumers, the External Benchmark-based Lending Rate (EBLR) was introduced in October 2019. Most new retail loans, including home loans, are now linked to the EBLR, which is tied to the repo rate. The MCLR, which is reviewed monthly, applies to older loans and some corporate lending. So, while some older loan types are seeing a rate cut, new home loans under the EBLR system are seeing a hike, specifically on the margin charged by the bank.

Conclusion

So, what's the bottom line? The recent home loan rate hike by State Bank of India isn't just a random adjustment. It's a calculated, strategic move to shore up profitability in a highly competitive market that has been defined by a fierce price war. By targeting new borrowers with lower credit scores, SBI is aiming to improve its margins without affecting its massive base of existing customers.

This could very well be the first sign that the tide is turning. After years of public sector banks driving rates down to unsustainable levels to capture market share, we may be seeing a return to more rational pricing. For prospective homebuyers, it means that while rates are still historically low, the very best deals might become a little harder to find, and a strong credit score is more important than ever.