Home Loans Get Cheapest In 6 Years As SBI Leads In Cutting Lending Rates

Home Loans Get Cheapest In 6 Years As SBI Leads In Cutting Lending Rates

Home Loans Get Cheapest In 6 Years As SBI Leads In Cutting Lending Rates

Published on: Jan 3, 2017 @ 20:21

Top  PSU  banks  led  by  State  Bank  of  India,  announced  sharp  cuts  to  their  lending  rates  and  slashed  their  benchmark  lending  rates  by  up to 90  basis  points. The  move  has  come  after  a  recent  surge  in  deposits after  demonetization, making  the  cost  of  funds  cheaper  for  banks  and  a  day  after  Prime  Minister  Narendra  Modi  asked  banks  to  priorities their  lending  towards  the  need  of  the  poor,  lower  middle  class  and middle  class.

Housing  loans  are  all  set  to  become  cheaper  with  several  PSU  banks  on  Monday  steeply  reducing  benchmark  lending  rate  after  spurt  in  deposits  following  demonetisation. On  Sunday, besides  State  Bank  of  India (SBI), Punjab  National  Bank  (PNB)  and  Union  Bank of  India  also slashed  their  lending  rates  by  up  to  0.9  percent.

THW  had  carried  a  report  earlier  that  “Demonetisation Will Lower Down Home Loan Rates” and  banks  were set  to  cut  rates  following  the  demonetisation.

Home  loan  rates  of  SBI  have  fallen  to  their  lowest  level  in  six  years  to  8.60  percent  from  9.10  percent  after  reducing   the  marginal  cost  of  lending  rate  (MCLR)  by  90  basis  points  effective  from  January  1,  2017 for  maturities  ranging  from  overnight  to  three-year  tenures. Following the  reduction  by  0.9%,  SBI’s  one-year  MCLR   has  come  down  to  8%  from  8.9%.

However,  SBI  kept  the  spread  above  MCLR  at  60  basis  points, against 20  basis  points  earlier. So, with  the  cut  in  MCLR  rate, MCLR  at  60 basis points, against  20 basis  points  earlier. So, with  the  cut  in  MCLR  rate, SBI  has  brought  down  the  home  loan  rate  in  the  floating  rate  category  to  8.60  per  cent  for  women  borrowers  against  9.10  percent earlier  and  to  8.65  per cent  for  others  against  9.15  percent  earlier  on  loans  up  to  Rs. 75 lakh. For  loans  above  75  lakh, the  rate  is  8.65  percent  for  women  borrowers  and  8.70  percent  for  others.

SBI  also  reintroduced  a  loan  product,  where  loans  will  be  available  at a  fix  rate  for  the  initial  two  years  and  at  a  floating  rate  in  subsequent  years. Women  borrowers  can  avail  home  loans  up  to  Rs 30 lakh  at  a  fixed  rate  of  8.5%  for  the  first  two  years  of  the  tenor  of  the  loan  and  at  a  floating  rate  in  subsequent  years. For  others, the home  loan  rate  has  been  fixed  at  8.55 %  for  the  first  two  years. Now, State  Bank  of  India  (SBI)  offering  home  loans  as  cheap  as  8.5%,  the lowest  in  six  years.

Apart  from  the  regular  home  loan  products, SBI  has  also  announced  a slew  of  retail  loans  including  “insta top-up”  on  mortgages  and  “bridge loan”  for  those  who  want  to  buy  a  new  house  before  their  old  house is  sold  off. An  instant  top-up  product, where  customers  will  be  allowed a  top-up  loan  for  home  improvement  at 1%  over  the  one  year  MCLR. The  bank  will  provide  a  bridge  loan  of  two-year  to  buy  the  new house  at  10.45%  in  the  first  year  and  11.45%  in  the  second  year, within  which  the  old  house  is  expected  to  have  been  sold  off.

So, SBI  has  passed  on  benefit  of  200  bps  since  January  2015  to customers,  which  is more  than  175  bps  reduction  in  the Reserve  Bank  Of  India’s  (RBI)  policy  rate  cut  in  the  same  period.

Other  public  sector  lenders  Punjab  National  Bank  (PNB)  and  Union Bank  of  India (UBI)  also  slashed  their  MCLR  rates  on  Sunday   and  have  brought  down  the  benchmark  interest  rate  by  up  to  0.9%.

PNB  has  cut  its  one-year  MCLR  rate  by  0.7  percent  to  8.45  percent  from  9.15  per cent,  effective  from  Monday.  Similarly, Union  Bank  of  India  has  reduced  its  MCLR  by  0.65-0.9%  to  8.65%,  effective  Monday. The  revised  one-year  MCLR  stands  at  8.65%.

Taking  a  cue  from  State  Bank  of  India,  several  other  lenders  including Oriental  Bank  of  Commerce, Andhra  Bank,  IDBI  Bank, Indian Overseas  Bank  and  Dena  Bank  announced  cut  in  marginal  cost  of funds  based  lending  rate  (MCLR)  with  effect  from  the  New  Year.

Oriental  Bank  of  Commerce  has  reduced  the  one-year  MCLR  rate  by 0.8  per cent  to  8.60 percent  while  Andhra  Bank  has  brought  it  down by  similar  percentage  point  to  8.65  percent  effective  on  Tuesday.

Dena  bank  has  reduced  marginal  cost  of  funds  based  lending  rate (MCLR)  by  0.75  per cent  to  8.55  per cent  for  1  year  tenor,  the  bank said  in  a  statement.

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  to  get  loans  linked  to  MCLR.

The  RBI  has  not  yet  released  the  final  numbers  of  deposits  banks have  attracted  since  PM Narendra Modi’s  government’s   decision on November  8  to  ban  the  higher  denomination  notes  to  fight  corruption, black  money  and  bring  unaccounted  cash  to  the  economy. According  to  an  earlier  report  by  RBI,  banks  had  received  an  estimated  Rs 12.5  lakh  crore  deposits  till  10th December  2016.

According  to  SBI  officials,  it  has  received  about  Rs  1.5  lakh  crore  in low-cost  deposits  in current  and  savings  accounts  (CASA). Banks  are flush  with  funds  after  the  note  ban,  with  Rs 2.4  lakh  crore  having been  deposited  with  banks  till  December  10. SBI  chairman Arundhati Bhattacharya  said, “There  is  huge  liquidity  with  the  bank  due  to  the large  flow  of  deposits. This  has  driven  us  to  reduce  lending  rates, which, hopefully, will  kickstart  credit  demand  and  growth.”

The  inflow  of  huge  deposits  into  banks  since  November  8  had  raised expectations  that  banks  would  cut  lending  rates. Now, banks  are  facing a  challenge  of  deploying  the  large  amounts  that  are  lying  with  them after  the  scrapping  of  Rs  500  and  Rs 1000  notes. This  money  when given  as  loan  would  fetch  more  returns. These  rates  cut  by  several  banks  will  lead  to  lower  borrowing  costs  and  help  credit  growth  in the  economy.

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