An expert says in comparison to savings account, liquid funds will give better returns as the interest rate on them is around 6.5% which is 1-2% higher than savings deposit
Vivina Vishwanathan | Mon, Jul 31 2017. 07 53 PM IST | LiveMint.com
On Monday, State Bank of India (SBI), the country’s largest lender, cut the interest rate on savings account deposits from 4% to 3.5% per annum. The bank, in a BSE notification, said the 3.5% per annum interest rate is for deposits up to Rs1 crore in a savings account. For deposits above Rs1 crore, account holders will continue to earn 4% interest. Here is a look at what it means and what you should do:
The rate cut
Till 2010-11, the interest rate on savings account deposits stood at 3.5%. In October 2011, the Reserve Bank of India (RBI) deregulated interest rate on savings accounts. This allowed banks to set their own interest rates. From 2011-12 onwards, a majority of the large commercial banks offered an interest rate of 4%. However, then new banks such as Yes Bank Ltd and Kotak Mahindra Bank Ltd started offering higher interest rates of 6-7%. Even today these banks offer a higher interest rate.
But why did SBI cut its interest rate?
“The rationale is that the real interest rate is very high right now. In April 2011, interest rate on savings accounts was 3.5% and then there was a negative carry of nearly 5%. Today, if you look at inflation and all other benchmark rates, there is a positive carry of nearly 2.46% on savings bank interest. Real interest being so high, there was no choice for the bank but to bring down the savings account interest rate. The choice was either to raise MCLR (marginal cost of funds-based lending rate) or reduce the savings bank rate. We didn’t consider it appropriate to raise MCLR,” said Rajnish Kumar, managing director, SBI.
What should you do?
Financial planners don’t recommend leaving money idle in a savings bank account. “Typically at 4% interest rate, it was never recommended to leave money in a savings account. At 3.5% it further doesn’t make any sense at all,” said Surya Bhatia, a New Delhi-based financial planner.
Then what should you do?
“Ideally, you should put your money in instruments that give you better returns. You can make use of sweep-in fixed deposit product or liquid funds,” said Bhatia. If you are under the higher tax brackets, fixed deposit may not work for you. Liquid fund will be a better option.
Swarup Mohanty, chief executive officer, Mirae Asset Global Investments (India) Pvt. Ltd, said, “For the first time, the realization of a low interest rate is likely to hit the consumers. SBI’s move will also start the entire process of shifting investment from guaranteed products to other financial assets. This is going to be a significant turning point for incremental money to move towards financial instruments. However, I am not concluding that all money will come to mutual funds but we will benefit,” said Mohanty.
So what is the interest rate on liquid funds?
“In comparison to savings account, a liquid fund will give you better returns. Currently the interest rate on liquid funds is around 6.5%. Last year it was around 8-9%. In any case you will benefit since you are likely to get 1-2% higher returns higher than savings deposit,” said Mohanty.
Hence, instead of leaving your money idle in a bank account, put it to work through other financial products.
By Saloni Shukla, Sangita Mehta | ET Bureau|Updated: May 08, 2017, 03.38 PM IST | Economic Times
MUMBAI: Country’s largest bank, State Bank of India has reduced home loan rates between 10 to 25 basis points, a move that will force other lenders to reduce rates. SBI has refrained from cutting its marginal cost of lending rate (MCLR) which stands at 8% for one year. SBI has the largest share on the home loan market.
The bank will now charge salaried borrowers 8.35% on home loans upto Rs 30 lakhs as against 8.60% For loan above Rs 30 lakhs bank will charge 8.50%, down by 10 bps. The bank will continue to charge 8.60% on loans above Rs 75 lakhs. The rate cut will help only the new borrowers since the existing borrowers are locked into one year fixed rate on interest as per the rule of arriving at lending rates.
The reduction in rates comes within a month of five associate banks merging with the parent bank. Recently SBI cut deposit rates sharply by 50 basis points across different maturities.
SBI has also said that an eligible home loan customer can also avail of an interest subsidy of Rs. 2.67 lacs under the Pradhan Mantri Awas Yojana scheme. SBI said that to supplement the affordable housing push, SBI has also come out with special offerings for construction finance to the builders for affordable housing projects. “This will give a dual push both for construction finance and also for home finance for affordable homes.”
Mr Rajnish Kumar, managing director, SBI said, “We have seen a steep hike in the home loan enquiries recently and reduction in rates will further help millions of home buyers fulfill their dream of owning a home. Individuals can apply for home Loans through multiple channels.”
Business PTI | Apr, 03 2017 18:53:46 IST | Firtspost.com
New Delhi – Ahead of the RBI monetary policy this week, the country’s largest bank SBI has reduced benchmark lending rate by 0.15 percent to 9.10 percent, a move that will lower EMIs for borrowers.
Base rate or the minimum lending rate of the bank has been reduced from 9.25 percent to 9.10 percent effective April 1. The bank has also reduced its base rate by 0.05 percent to 9.25 percent.
Similarly, benchmark prime lending rate (BPLR) has also been reduced by similar percentage points to 13.85 percent from 14 percent.
With the reduction, EMIs for the new as well as existing borrowers who have taken housing and car loans at base rate will come down by at least 0.15 percent.
The new rate is effective from the date the bank merged five of its associates and Bharatiya Mahila Bank putting it on the list of top 50 large banks of the world.
The total customer base of the bank has reached 37 crore with a branch network of around 24,000 and nearly 59,000 ATMs across the country.
The merged entity has a deposit base of more than Rs 26 lakh crore and advances of Rs 18.50 lakh crore. It is to be noted that the SBI has made changes in signage and logo, with its iconic keyhole set against the background of inky blue.
There have been minor changes in the design and colour of SBI’s new look from April 1.
The background to the SBI signboard has been changed from white to inky blue while the SBI logo or the monogram is a few shades lighter than the existing blue.
PTI Mumbai | Last Updated: April 8, 2016 | 10:39 IST | Business Today
Leading banks SBI and ICICI on Thursday cut their home loan rates by 0.10 percentage point to 9.4 per cent following implementation of a new interest rate calculation regime mandated by RBI.
The lending rates of other banks may also fall soon with the Marginal Cost of Funds based Lending Rate (MCLR) system coming into force with effect from April 1.
If the banks decide to pass on the latest 0.25 per cent policy rate cut announced by RBI on April 5, the rates for borrowers may go down further.
SBI in a statement on Thursday said that it has fixed its home loan interest rate at 9.45 per cent, which is 0.25 percentage point more than its one-year marginal cost of fund-based lending rate of 9.20 per cent.
However, women borrower would get the loan 0.20 percentage point above the MCLR at 9.40 per cent, it said.
The new rate is applicable from April 1, it said.
As per the information available on SBI website, the earlier home loan rate 9.5 per cent for women borrowers and 9.55 per cent for others.
As per ICICI’s website, the private lender’s minimum home loan rates are also at par with its bigger rival SBI as both the 1-year MCLR and the spread over it are same.
However ICICI Bank’s effective rate of interest will go up to 9.65 per cent for loans above Rs 5 crore taken by women borrowers under floating interest rate.
The weaker section borrowers will be able to avail loans of up to Rs 25 lakh at 9.40 per cent.
RBI had asked banks to price fixed-rate loans of up to three years based on their marginal cost of funds from April 1. All banks have to follow MCLR system, a new uniform methodology which will ensure fair interest rates to borrowers as well as to banks.
Source : http://goo.gl/J5DH7k
RADHIKA MERWIN | February 14, 2016 | Hindu Business Line
SBI’s FlexiPay lets you to borrow more. But don’t bite off more than you can chew
Buying a home is a major milestone for most young people with a secure job.
But it can also be one of the most stressful financial decisions you take at the start of your career, as it can set you back financially by a few years.
If you have put off buying your dream home because you could not afford to pay the hefty equated monthly instalments (EMIs), the recently launched home loan product by State Bank of India could appear attractive.
For one, the product, known as SBI FlexiPay, helps you get a higher loan amount than you would normally be eligible for under a regular home loan.
Two, for the initial three-five-year moratorium period, you will pay only the interest on your loan, after which you will have to pay moderated EMIs. These will be stepped up in later years.
The ability to borrow more and the lower EMI in the initial years may tempt you to go for that sprawling villa you have been eyeing for some time now. But here are a few things you need to take note of before signing up.
Most banks decide on your eligible loan amount based on the value of the home and your affordability. Banks offer loans at about 75-80 per cent of the value of the house (loan-to-value ratio). But banks may offer you a lesser amount than this if your affordability is lower.
Do you need more?
Say, for instance, you decide to buy a house worth ₹80 lakh. Based on a 75 per cent loan-to-value-ratio, the bank can offer you a loan up to ₹60 lakh. But, based on your income, the bank may offer you only a ₹50-lakh loan.
Under SBI’s FlexiPay, you can now be eligible for ₹60 lakh (20 per cent more than that under a regular home loan).
The reason for the bank’s largesse is the assumption that your income level will increase over the years, and you will be able to pay the additional loan amount comfortably.
It may seem an attractive option for you, too, as the additional loan amount will bring you closer to your dream home.
But it will also mean that you are stretching yourself thinner on your income. If earlier the bank offered you a loan that translated into an EMI of half your monthly income, you will now be able to get a loan in which your monthly payments are maybe about two-thirds your monthly income.
You may want to assess your monthly expenses to see if you can actually afford a higher loan.
To relieve you of the additional burden on your EMI (on the higher loan amount), SBI makes the deal sweeter by allowing you to pay a lower amount in the initial years.
The product allows you to pay only the interest component in the first three (for a ready-to-buy home) to five (under construction house) years.
Hence, on a ₹60-lakh home loan at 9.5 per cent for 25 years, while your EMI works out to about ₹52,420 under a regular home loan scheme, under the new SBI scheme, you have the option of paying only about ₹47,500 a month (the interest portion) for the first three years.
A clear saving of about ₹4,900 a month for three years sounds like a good deal. But this respite comes at a cost.
The EMI on your home loan, normally, goes towards payment of both the principal and the interest components of the loan. In the initial period, say, three-five years, a chunk (85-90 per cent) of your EMI goes towards payment of the interest component.
As you move towards the end of your loan period, the major portion of your EMI goes towards paying your principal amount.
Even so, by paying only the interest component in the first three years, you end up increasing your total outgo on the loan by the end of the tenure.
In the above example, after three years, on your principal of ₹60 lakh, the bank will calculate EMI based on the original tenure of 25 years (assuming the same rate of 9.5 per cent).
So your monthly payment from ₹47,500, will go up to ₹52,420, a straight 10 per cent jump from the fourth year.
So, you will have to ensure that you can afford the bump up in monthly payment after three years.
SBI calculates your EMI from the fourth year, based on the original tenure (25 years) and not the remaining tenure (22 years) after the three-year principal moratorium period. This is to start you off with a lower EMI.
Remember, if the loan is spread out over a longer tenure, it results in lower monthly payment. Since you pay a lower EMI from the fourth to the sixth year, SBI gradually steps your EMI from the seventh year onwards, to make good the lower amount. So, from ₹52,420, the bank will increase the EMI by about 5 per cent to about ₹54,900 from the seventh year.
In the above example, under SBI’s FlexiPay scheme, you may pay about ₹4 lakh more on your loan over the tenure of 25 years compared with a regular home loan.
The scheme offers you flexibility at a cost that is not too high. But be sure that you are able to afford the higher EMIs in subsequent years.
Source : http://goo.gl/dpDt3z
State Bank of India (SBI) chairman Arundhati Bhattacharya has said that there should be a level-playing field between banks and housing finance companies (HFCs) over pegging interest rates below benchmark rates.
Mayur Shetty | TNN | 02 November 2015, 8:07 AM IST | ET Realty
MUMBAI: State Bank of India (SBI) chairman Arundhati Bhattacharya has said that there should be a level-playing field between banks and housing finance companies (HFCs) over pegging interest rates below benchmark rates.
According to RBI guidelines, bank loans are priced above the benchmark rate, which is the ‘base rate’. In the case of HFCs, the benchmark is their prime lending rate. However, HFCs face no restrictions on lending below their prime lending rates. As a result when rates change, banks have less freedom to re-price loans selectively compared to HFCs, which can vary the spreads over or below the benchmark to any extent.
“I don’t think there should be any regulatory arbitrage (between banks and HFCs). Regulatory arbitrage always makes for an uneven-playing field, and in any area that you are operating it is important to have a level-playing field so that the most efficient of them do the best job,” said Bhattacharya.
According to her, the regulator had spoken of the difference between cost of funds for banks and HFCs as the reason for the discrepancy. “The regulator says that they also have to get their resources at higher cost compared to what the banks pay. So there are pros and cons for everyone and, therefore, how do you create equity so that everyone has a level-playing field? It is difficult to opine on this,” she said.
Explaining her earlier demand for more flexibility in home loans, Bhattacharya said that the bank was not seeking introduction of teaser loans. Rather, it was keen on introducing step-up loans where EMIs rise after initial years. “I believe that there is a place for this. When people take a loan, they go right up to the top. But over time, repayment becomes easier as salaries go up and lifestyle changes to adjust to the instalments, and within two or three years the EMI does not hurt as much as it did in the initial years. Therefore, a variable EMI is something that makes repayment easier,” she said.
She added that there are also some borrowers who do not immediately shift into the house and have an additional burden of rental in the initial two-three years. “There are difficulties in the first two-three years, which we feel if there is a step-up EMI, then that definitely addresses stretched budgeting for first-time home loan borrowers,” she said. On a proposal by the National Housing Bank to reintroduce prepayment charges on floating rate loans if loans are prepaid in the first two years, Bhattacharya said, “In case of floating rate loans, The loans are anyway floating downwards. In that case, is there any case for a prepayment penalty? We have not put our mind to it.”
Source : http://goo.gl/AIQdzr
Manju AB | Tuesday, 13 January 2015 – 7:45am IST | Place: Mumbai | Agency: DNA
Bank’s total home loan outstanding stood at Rs 1,52,905 cr in December quarter; HDFC’s home loan book was at Rs 1,45,300 cr as on September 30
State Bank of India (SBI), country’s largest bank, is expected to end the third quarter (October-December) with a total home loan outstanding of Rs 1,52,905 crore.
The bank is sanctioning about 800 home loans with average sanctions of Rs 150 crore daily, making it the largest player in the retail banking space, once dominated by private players.
The pace of growth in home loans has picked up from daily sanctions of Rs 120 crore in the beginning of the financial year 2014-15 to about Rs 150 crore to a maximum of Rs 250 crore in the third quarter ended December 2014.
The total home loan outstanding of the bank at the end of December 2014 grew by Rs 4,403 crore from the preceding quarter (September 30, 2014) when the bank had reported a home loan outstanding of Rs 1,48,502 crore.
B Sriram, managing director and group executive (national banking group), SBI, told dna, “SBI has 1,405 residential projects where the bank has obtained single title clearance projects… so individual title clearance is not required and sanctions are faster. We are seeing a steady pick-up in the home loan sanctions in the third quarter compared to the first two quarters of the financial year.”
Close rival and mortgage finance company HDFC has a home loan book of Rs 1,45,300 crore as on September 30, 2014, about Rs 7,700 crore higher than the preceding quarter, making it the second largest home loan provider. The third quarter numbers of HDFC is yet to be announced.
LIC Housing Finance is the third largest player with total home loans outstanding of Rs 95,310 crore at the end of the second quarter. Country’s largest private sector lender, ICICI Bank, has the fourth largest market share. At the end of the second quarter, the bank had Rs 79,255 crore growing by Rs 5,030 crore over the preceding quarter.
While the incremental home loan growth is higher for both ICICI Bank and HDFC, SBI has the highest market share of home loans. With interest rates at similar levels at 10.10% for women home loan customers and 10.15 % for general category, the competition is going to be stiff.
Not willing to give up its turf, SBI has more people engaged in the marketing and sale of home loans. “We have more people on the street now. About 40,000 to 50,000 of the sales and agents of subsidiary companies like the insurance companies are also engaged in the marketing and sale of home loans. Specialised processing centres to process the loans are in place so that the turnaround time is substantially reduced,” said Sriram.
According to an analysis undertaken by the European Mortgages Federation and HDFC, the mortgage penetration as a percentage of nominal GDP in India is as low as 9%, while in the United Kingdom, it is as high as 81%, US 69 %, and the other Asian peers like China the penetration is 17% while South Korea ranks high at 36%. The highest mortgage penetration as a percentage of GDP in the world is in Denmark where it is 101%. This shows that there is a huge untapped demand which banks like SBI are tapping into with its huge network of branches.
Source : http://goo.gl/GviUcc
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