SBI cuts home loan rates to 8%, other banks may follow

In a move that is likely to force other banks to bring down home loan rates, the State Bank of India on Saturday cut its floating home loan rate to 8% on all new loans, irrespective of the loan amount. The current rates range between 8.5% and 11%, depending on the loan amounts. The new scheme will be on offer from Monday till April 30. Those who take loans in this 12-week period are assured of an unchanged rate for one year.

SBI's decision means that for fresh borrowers, EMIs on home loans of Rs 30 lakh or more will drop sharply. The EMI on a Rs 30-lakh loan for 20 years will fall by 15% and that on a Rs 50-lakh loan by 18%. The maximum benefit will accrue on home loan amounts of over Rs 75 lakh, where the interest rate comes down by 3 percentage points from 11% to 8%.

That's the good news. The bad news is that the cut will not benefit most existing borrowers. It will, however, benefit those who have borrowed under the special scheme announced by the Indian Banks' Association (IBA) in December. Under that scheme, the interest rate on home loans up to Rs 5 lakh was fixed at 8.5% and for those between Rs 5 lakh and Rs 20 lakh at 9.25%.

For existing borrowers, SBI has offered a new personal loan scheme entitled `SBI Lifestyle Loan'. Under this, they can get a multipurpose loan of up to 10% of their home loan, subject to a maximum of Rs 5 lakh, at 8% interest. However, this loan will have to be repaid in one year.

SBI's decision seems to be a response to RBI's statement on Tuesday that banks have not fully passed on to their customers the benefits of the central bank's liquidity-infusing measures since October 2008. Following that statement, Punjab National Bank, the second largest government-owned bank, also cut its benchmark lending rate by half a percentage point on Friday. But floating rates on its home loans remain between 8.5% and 10.25%.

An SBI spokesperson said the decision was taken to kick-start demand in the real estate sector. However, real estate developers are not very optimistic, with most saying it was encouraging but inadequate.

Some bankers, on condition of anonymity, argued that it was a smart move by SBI. Interest rates, they said, were likely to fall even lower by March-April and the country's biggest bank was, in fact, hoping to lock in borrowers at 8% for a year before that happened, they said.

(via Times of India)