Mumbai: Home loan rates have fallen to their lowest level in six years with State Bank of India, the country's largest lender, cutting the effective rate to 8.6% from 9.10%.
While SBI cut its one-year marginal cost of lending rate (MCLR)—the benchmark to which home loans are linked —to 8%, against 8.9% earlier, it kept the spread above MCLR at 60 basis points, against 20 basis points earlier. So, home loans up to Rs 75 lakh, earlier available at 9.1%, can now be taken at 8.60%. For others, the rate would be 8.65%, against 9.15% earlier.
Besides SBI, Union Bank of India and Punjab National Bank also cut rates. Private sector banks like ICICI Bank are expected to follow suit.
TOI had carried a front-page report on January 1, saying SBI and other banks were set to cut rates following a prod from Prime Minister Narendra Modi to signal that benefits of demonetisation in the form of record deposits are being shared with the poor and middle class.
The reduction in the lending rates by several public sector banks will make the affordable home loan scheme, announced by PM Modi on Sunday, available at a little over 4% for borrowers seeking loans of up to Rs 9 lakh. Details of the scheme are yet to be announced.
The reduction in MCLR will mean that new borrowers will get loans at the cheaper rates. Since home loans are linked to one-year MCLR, the rates are locked in for 12 months. Older loans will get the benefit of the new rates only after their one-year lock-in ends.
Those who had availed loans before April 2016 would have their EMIs linked to the earlier benchmark, the base rate. These borrowers will have to enter into a fresh contract with the bank (by paying a small fee) to get loans linked to MCLR.
SBI has also reintroduced a teaser rate loan, where loans wioll be avilable at 8.5% for the first two years and at a floating rate in subsequent years. These loans were discontinuyed five years ago after RBI frowned on them.
Other banks which have announced lower rates with effect from the New Year include State Bank of Travancore, IDBI Bank and Indian Overseas Bank. Top officials of SBI said that home loans would provide the bank with an alternative to parking funds in government bonds where the return is less than 7%.
Meanwhile, banks expect the interest subvention on loans for affordable homes and home extensions and small enterprises to counter the slowdown caused by monetary contraction following demonetisation. The impact of the schemes is expected to be felt in lending and on the overall economy in the first quarter of FY18.
"Today, 45% of bank loans is going to only 300 companies. The extreme concentration of bank credit on the top end of the corporate sector has begun to border on the ridiculous," said Rajiv Lall, MD & CEO, IDFC Bank. He added that the announcements by the Prime Minister would help rebalance this by encouraging loans to small business where the framework has already been created with the help of payment systems and bank accounts.
Lall also welcomed the fact that the government was encouraging small lending through market related programmes as compared to the past when priority sector lending was in the form of a diktat.
"From our perspective this is extremely positive and will help us further in penetrating into the segments we serve. With these announcements, the challenges that all faced following demonetisation would clearly be history," said Kapil Wadhawan, chairman and MD, Dewan Housing Finance Corporation.
According to Gagan Banga, vice chairman and MD, Indiabullls Housing Finance, subsidised home loans will find many takers as the EMI cheque will now be smaller than the rent cheque.
"This is a tremendously positive announcement coming on the back of many directed steps to realise the 'Housing for All' objective. Along with the Credit Guarantee for SMEs, this will ensure small business owners and middle class salaried customers will be able to achieve progress in their business and move out of rented homes to own their own house," said Banga.
