Mayur Shetty | TNN | Nov 2, 2016, 04.00 AM IST
Mumbai: State Bank of India (SBI) has cut home loan rates to a 9.1% — the lowest in six years — as part of a festive scheme. The rate cut comes on the back of a general interest rate reduction last week when SBI reduced its benchmark rates by 15 basis points (bps, 100bps = 1 percentage point).
In terms of the festival scheme, home loans for women (or loans with women as co-borrowers) will be available for 20bps above the benchmark rate, which translates into 9.1%. For all other borrowers, home loans will be available at 9.15%. The festival rates will be available for loans sanctioned in November and December 2016 and where disbursement is taking place in a month. In addition to rate reduction, the bank has waived off all processing fees.
Speaking to TOI, SBI MD Rajnish Kumar said, “The rate cut will bring down the equated monthly instalment on a Rs 50-lakh loan by Rs 542 per month. Since March, the EMI has come down by over Rs 1,500.” With this reduction, SBI’s cheapest home loans are now 20bps lower than ICICI Bank and HDFC’s cheapest home loan rate of 9.3%.
SBI’s aggressive cut in home loan rates comes at a time when the banking sector is seeing an extremely sluggish growth in loans. The corporate loan books of most banks have shrunk as companies are shifting to the bond market. Despite negative growth in corporate loans, overall bank credit has grown by 1.6% in FY17 (as of mid-October) due to home loans which are growing at 18%. To push this fastest growing segment in the industry, SBI is aiming to increase its loan growth by grabbing market share from other lenders by offering the lower rates on takeover of loans.
The latest round of rate cut will be available only for new borrowers as the bank has done this by revising the spread over the benchmark. SBI’s benchmark rate is the one-year Marginal Cost of Lending Rate (MCLR), which has been effective from April 2016. Earlier, loans were priced in relation to the older benchmark — the base rate. The MCLR is revised every month for new borrowers. But once a customer avails of a loan, he is locked into the MCLR for a year.
While lower home loan rates reduce SBI’s margins, they help the bank in deploying resources which are piling up as bank deposits are growing at a faster clip compared to bank loans. Home loans can also be priced lower because there are low defaults and a bulk of the home loans attract only half the capital requirement as against corporate loans. “We had reduced our deposit rates earlier but senior citizens will now get 50bps additional return as against only 25bps earlier,” said Kumar.