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SBI to give home loans for as low as 9%
December 21, 2008
New Delhi: Come new year, home loans will get cheaper, but you will also have to settle for lower interest on bank deposits. SBI on Saturday announced cuts in prime lending rates (PLR) by 0.75 percentage point and deposit rates by upto one percentage point effective January 1, 2009.
The cut in PLR means that even existing customers who have borrowed at floating rate will see a dip in EMIs. After the cuts, home loans of up to Rs 30 lakh, for tenures between 15 and 25 years, will be available at 9.5%, loans of Rs 30 lakh to Rs 75 lakh at 10.75% and those above Rs 75 lakh at 11%. Interestingly, for 5-year home loans up to Rs 30 lakh the rate will come down to 9%, which would be lower than even the rate of 9.25% offered by public sector banks. The cut follows P Chidambaram’s statement two days ago that banks should provide relief to existing borrowers as well.
 SBI rate cut will force other banks to follow suit
After the rate cuts, SBI home loans of up to Rs 30 lakh, for tenures between 15 and 25 years, will be available at 9.5%, loans of Rs 30 lakh to Rs 75 lakh at 10.75% and those above Rs 75 lakh at 11%. Interestingly, for 5-year home loans up to Rs 30 lakh the rate will come down to 9%, which would be lower than even the concessional rate of 9.25% offered by public sector banks at the behest of the government.
The rate cuts announced by SBI are bound to lead to similar cuts by others in the home loan business, which is good news not just for prospective home buyers, but also the beleaguered real estate sector.
Meanwhile, LIC Housing Finance too announced a 0.75-2.25 percentage point cut in its lending rates for home loans upto to Rs 20 lakh from December 17. A CMD of a public sector bank said that as inflation falls, the deposits and lending rates will continue to move downwards. The cut in rates is a result of the recent fall in cost of funds from the market, a senior SBI official said, and also indicated that the rates could fall further.
SBI also cut deposit rates downwards by 0.25 to one percentage point across various maturities effective from January 1, 2009. The maximum cut was in special deposits of 1,000 days, where the rate has been cut by one percentage point to 9%. For 3-5 years maturity, the deposit rate has been cut by 75 basis points to 8.5%.
Top bankers said the current spate of rate cuts was the outcome of a drastic fall in the rate of inflation as well as a series of concerted efforts by the government and the Reserve Bank of India to infuse liquidity into the economy. Over the past three months, RBI has not only pumped in large quantities of money into the economy but has also cut key policy rates.
The government, on its part, also infused Rs 4,000 crore into the housing sector through National Housing Bank (one of the reasons for LIC Housing Finance cutting its rates) and forced PSU banks to slash home loan rates for new loans of up to Rs 20 lakh.
The steps taken by the government and the RBI were also aimed at reviving the housing sector which is struggling because of the slowing economy.
PSU banks cut rates, but it may not help much
All PSU banks on Monday bowed to government pressure and announced halfmeasures for giving the faltering housing sector a leg-up. So, all 26 of them came up with a concessional home loan rate scheme that is limited to loans up to Rs 20 lakh — a step described as ‘‘window-dressing’’ by housing companies. They felt this was unlikely to breathe life into a comatose property market, especially in the big cities.
These concessional loans will be available only to new borrowers (ostensibly to attract new buyers into the property market) but offer no help to existing borrowers who are groaning under a steep increase in loan rates. These banks — and other private banks and housing finance companies — had speedily hiked interest rates when overall rates went up, but have been slow to reduce home loan rates when money has otherwise become cheaper.
PSU banks will charge 8.5% per annum on home loans up to Rs 5 lakh and 9.25% on those between Rs 5 lakh and 20 lakh. This, theoretically, should give some sort of fillip to housing in Tier Two cities, but property builders sounded sceptical.
Bank of India CMD T S Narayanasami said, ‘‘The concessional rate will not apply to new loans taken for swapping existing home loans.’’ That leaves old borrowers with no way of benefitting from the scheme. Also, none of the really big private sector home loan disbursers, such as HDFC or ICICI, have indicated that they will also introduce concessional loans.
The new rates will effectively act as a ceiling for the first five years of loans taken now, after which they can be reset. Within the first five years, if interest rates fall below these concessional rates, banks will charge the lower of the two.
The scheme has some additional benefits. For loans up to Rs 5 lakh, borrowers will need to make a down payment of only 10% of the cost of the property, while for loans above this amount, the down payment will be 15%. The current proportion is between 15% and 20%.
HALFWAY HOUSE MEASURES
- Interest rates on home loans up to Rs 5 lakh capped at 8.5%
- Rates for loans of Rs 5 lakh-20 lakh not to exceed 9.25% for first five years
- No processing fee or pre-payment charges for home loans under these categories
- Free insurance cover for loans up to Rs 20 lakh
CAVEATS
- Available only for new housing loans from PSU banks from Dec 16 to June 30, 2009
- Will not apply to existing customers even if they swap loans from existing bank to another PSU bank
No processing fees on home loan
No processing fees will be charged for concessional home loan against 1.5% charged at present. No pre-payment penalty will be imposed if a borrower wants to repay the amount ahead of the repayment period. Currently, a borrower has to pay a prepayment charge of around 2% of outstanding amount.
The scheme, which will remain effective till June 30, 2009, has also put the onus on the banks to provide life insurance coverage up to oustanding amount of the loan till it is repaid. In the case of a home loan of Rs 20 lakh, this will mean the bank will have to pay a premium of around Rs 12,000 in the first year.
The concessional rate of 8.5% on loan of Rs 5 lakh, against the present rate of 10.25% offered by SBI, will lead to a reduction in EMI by around 12% from Rs 4,908 to Rs 4,339. In the case of a Rs 20 lakh loan, borrower will save 7%. However, developers say the scheme will not provide much respite to home buyers in major cities. ‘‘Hardly any property is available for Rs 20 lakh in places like NCR, Mumbai, Chennai and Kolkata,,’’ said Anshuman Magazine of CB Richard Ellis.
Source: The Times of India
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