SBI Just Hiked Home Loan Rates—Here’s the Real Story

If you've been keeping an eye on the home loan market, you might have seen the recent headlines. India's largest lender, State Bank of India (SBI), made a significant move by revising its home loan interest rates effective August 1, 2025. What’s turning heads is that this comes at a time when the RBI decided to leave its key policy rates untouched. It's a bit of a head-scratcher, right? Let's dive into what’s really going on behind the scenes.

Key Highlights

• ✓ State Bank of India (SBI) revised its home loan rates, increasing the upper band by 25 basis points to 8.70% from August 1, 2025.
• ✓ This hike occurred despite the Reserve Bank of India (RBI) keeping the key repo rate unchanged at 5.55%.
• ✓ Public sector banks are widening their loan spreads to protect profitability due to sticky deposit costs.
• ✓ Other major lenders like PNB and Canara Bank offer competitive starting rates from 7.45% and 7.40% respectively.
• ✓ The home loan market is seeing a strategic shift from aggressive growth to prioritizing sustainable returns and healthy margins.

Decoding SBI's Rate Adjustment

So, what did SBI actually change? The bank raised the upper band of its interest rates for regular home loans by 25 basis points—that’s a fancy way of saying a 0.25% increase. This pushes the upper limit from 8.45% to a new rate of 8.70%. Interestingly, the lower limit of their home loan rates, which starts at 7.50%, has remained the same. This means the hike primarily affects borrowers with weaker credit profiles.

The timing is what makes this so curious. The decision came right after the RBI's Monetary Policy announcement in August 2025, where they decided to keep the benchmark repo rate steady at 5.55%. Usually, we expect loan rates to follow the RBI's lead, but that’s not what happened here. It signals a deeper shift in how banks, especially public sector ones, are approaching their business.

A Quick Look Across the Market

Of course, SBI isn't the only player in the game. To give you a better picture, here’s a snapshot of what other major banks are offering. HDFC Bank, a giant in the private sector, offers home loans with interest rates starting from 7.90% per annum. This rate applies not just to new home loans but also to balance transfers and renovation loans.

Then you have ICICI Bank, which has a more tiered approach. Their rates start at a competitive 7.70%, but the actual rate you get depends heavily on whether you're salaried or self-employed, and the loan amount. For a loan up to ₹35 lakh, a salaried individual might see rates between 8.75% and 9.40%, while a self-employed person could face rates up to 9.55%. These rates climb slightly for bigger loan amounts, showing just how personalized lending has become.

Other public sector banks are also in the mix with some very competitive starting points. Punjab National Bank (PNB) offers loans starting at 7.45%, while Bank of Baroda has a range of 7.45% to 9.20%. Canara Bank has one of the lowest starting points at 7.40%, but its range goes all the way up to 10.25%. For all these banks, the final rate heavily depends on the loan amount, tenure, and, most importantly, your CIBIL score.

💡 What's Interesting: According to HDFC Bank's CFO, Srinivasan Vaidyanathan, the bank consciously slowed its mortgage disbursals because they chose not to compete with the "irrational" low rates offered by some public sector institutions. They're focused on building a "holistic relationship" rather than just pushing a single product at the lowest price.

The Big Shift: Profitability Over Aggressive Growth

So, why are banks like SBI and Union Bank of India suddenly widening their loan spreads—the margin they make over their borrowing cost? The answer boils down to protecting their profitability. For a while now, public sector banks (PSBs) have been on a mission to capture market share, often by offering home loans at razor-thin margins. They used these cheap loans as a gateway to attract customers and cross-sell other products.

This strategy worked, at least for growth. Between FY22 and FY25, PSBs like SBI, Bank of Baroda, and PNB grew their mortgage books at a faster clip (14-18%) than private rivals like HDFC Bank and ICICI Bank. However, this aggressive pricing is becoming less sustainable. The problem is what’s known as sticky deposit costs. While lending rates tied to the repo rate can change quickly, the interest banks pay you on your fixed deposits doesn't drop as fast. This puts a serious squeeze on their Net Interest Margins (NIMs).

Essentially, home loans were starting to become a drag on returns. For a massive lender like SBI, which has an ₹8 lakh crore home loan portfolio, even a tiny change in spreads has a huge impact on its bottom line. As one private sector bank executive put it, it's nearly impossible to earn a decent return on a home loan with an interest rate of 7.3%. This is a clear signal that the industry is resetting its strategy: protecting margins comes first, and rapid growth comes second.

What Does This Mean for You, the Borrower?

Here's where it gets really interesting, especially if you're in the market for a loan. In the past, it was almost always the new borrowers who got the sweetest deals, while existing customers were stuck with older, higher rates. Now, we're seeing a reversal of that trend. Banks are obligated by RBI rules to pass on cuts in the external benchmark rate to their existing customers, so their loans can get cheaper when the repo rate falls.

However, new borrowers are facing higher costs because banks are increasing the credit risk premium and other components that make up the final interest rate. This means that even with a falling policy rate, the actual rate offered to a new applicant might be higher than before. Any increase in the home loan rate directly translates to higher borrowing costs. It means a slightly increased EMI and a greater overall interest burden throughout the life of the loan.

It's a clear sign that the mortgage boom, which saw overall home loan growth hit a staggering 36.3% in the year to June 2024, is cooling down. That growth has now slowed to 9.6% as of June 2025. The era of ultra-cheap credit might be winding down as banks pivot toward more sustainable and profitable lending practices. SBI Chairman CS Setty noted that while the bank has seen strong 15% year-on-year growth in home loans, they are applying a "disciplined risk-adjusted lens on every incremental rupee of credit."

Conclusion

The bottom line is that the home loan market is entering a new phase. SBI's decision to raise its upper interest rate band, even without a change in the RBI's repo rate, is a major indicator of this shift. Banks are moving away from the old playbook of chasing market share at all costs and are now focusing squarely on protecting their margins and ensuring sustainable returns.

For homebuyers, this means that while competitive rates are still out there, the days of rock-bottom, "irrational" pricing may be behind us. It’s more important than ever to maintain a good credit score and shop around, as the difference between what various banks offer can be quite significant. The focus is shifting from simply cheap credit to more realistic, sustainable lending for the long haul.