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Saturday, October 23, 2021

Home loan: Competition heats up as banks go on interest rate cutting spree

Although the Reserve Bank of India (RBI) has kept the policy rates unchanged at four per cent in the last seven review meetings, many banks last week slashed the home loan rates.

Written by George Mathew | Mumbai |
Updated: September 19, 2021 7:45:02 am
Slashing the rates has triggered a competition among banks to woo customers. (Image source: Pixabay)

With the economy on the comeback trail and the home buying market expected to stage a growth in the forthcoming festival season, lenders are racing to woo home loan customers with interest rate cuts. Although the Reserve Bank of India (RBI) has kept the policy rates unchanged at four per cent in the last seven review meetings, banks led by State Bank of India, Kotak Mahindra, PNB and others last week slashed the home loan rates, triggering a competition among banks to woo customers.

SBI, which has a home loan portfolio of Rs 5.05 lakh crore, has now offered credit score linked home loans at 6.70 per cent, irrespective of the loan amount. The offer results in a saving of 45 bps which translates to a huge interest saving of more than Rs 8 lakh, for a Rs 75 lakh loan with a 30-year tenure, the bank says. The home loan outstanding of the banking sector has shown a growth rate of 8.9 per cent to Rs 14.66 lakh crore as of July 2021 as against Rs 13.46 lakh crore a year ago, indicating that banks disbursed around Rs 120,000 crore as home loans during the 12-month period despite the uncertainties created by the Covid pandemic. The home loan segment is considered the safest area for bank lending with minimal non-performing assets.

Punjab National Bank (PNB) has slashed the repo-based lending rate by 25 basis points (bps) to 6.55 per cent. It revised the repo-linked lending rate (RLLR) from 6.80 per cent to 6.55 per cent, with effect from September 17. The bank has also announced offering top-up home loans at an attractive rate of interest to existing as well as balance transfer cases. PNB is already offering a full waiver of service charges/ processing fees on home loans, vehicle loans, personal loans, pension Loans, myProperty loans and gold loans under its festival bonanza offer, it said.

Kotak Mahindra Bank kick-started the festive season by announcing that it has reduced its home loan interest rates yet again by a further 15 basis points from 6.65 per cent to 6.50 per cent. Bank of Baroda is offering a waiver of 0.25 per cent in the existing applicable rates for home and car loans. In addition to that, the bank is also offering a waiver of processing fees in home loans. Home loan rates will now start at 6.75 per cent and car loan rates start at 7.00 per cent.

SBI has removed the distinction between a salaried and a non-salaried borrower. Earlier, the rate applicable for a non-salaried borrower was 15 bps higher than the interest rate applicable to a salaried borrower. This would lead to a further interest saving of 15 bps to non-salaried borrowers.
CS Setty, managing director (retail & digital banking), SBI, said, “Generally, the concessional interest rates are applicable for a loan up to a certain limit and are also linked to the profession of the borrower. This time, we have made the offers more inclusive and the offers are available to all segments of borrowers irrespective of the loan amount and the profession of the borrower.” SBI’s 6.70 per cent home loan offer is also applicable to balance transfer cases. “We believe zero processing fees and concessional interest rates in the festive season will make homeownership more affordable,” Setty said.

On the interest rate cut, Ambuj Chandna, president–consumer assets, Kotak Mahindra Bank said, “As the world has changed and we are spending more time at home, our lifestyles have also evolved. People are looking for comfortable residences where the entire family can work, entertain and spend quality time together.” Mortgage major HDFC and Bajaj Finserv are also active offering home loans at 6.75 per cent. Banks and the real estate segment are pinning their hopes on a faster growth in the segment as the economy is in the recovery mode and industry is almost back to the pre-pandemic levels. “The mood among home buyers is quite positive and this rate cut will act as a catalyst for quicker decisions. Given the upcoming festive season, which is considered auspicious by a large number of Indians to make big-ticket purchases, the timing of a reduction in interest rate couldn’t have been better,” said Amit Goyal, CEO, India Sotheby’s International Realty.

Ananta Singh Raghuvanshi, senior executive director, Experion Developers, said, “Lower interest rate regime, competitive pricing and stable supply are key factors this festive season. We hope other banks would also follow suit. Besides the attractive lower interest rate regime, the fact that developers will offer festive schemes should help boost sales for real estate.” For affordable and mid-range home buyers, home loan interest rates are almost as important as property rates.

“Cost-sensitivity impacts all aspects of their home purchase journey and a reduction in interest rate can make the difference between purchase decisions and indecision. It is apt for lower interest rates to coincide with the festive season. This year there is a lot of pent-up demand waiting to hit the market,” said Anuj Puri, chairman, ANAROCK Property Consultants.

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