Top banks have reduced interest rates on new home loans, including balance transfers, as they compete for a much bigger pie of the reviving housing market.
Kotak Mahindra Bank, on September 9, set the tone by slashing home equity credit rates by 15 bps to six .50 percent. The limited offer, available for 2 months, is applicable across all loan amounts and linked to the borrower’s credit profile.
“As the planet has changed and that we are spending longer reception , our lifestyles have also evolved. People are trying to find comfortable residences where the whole family can work, entertain and spend quality time together,” Ambuj Chanda, President, Consumer Assets, Kotak Mahindra said during a media statement.
On September 16, India’s largest lender depository financial institution of India and Bank of Baroda had slashed home equity credit rates to six .70 percent and 6.75 percent. Both the public-sector banks have also waived the processing fee. SBI has further allowed self-employed borrowers to borrow at an equivalent level as compared to previous 15 bps above the continued rate.
C.S. Setty, director (Retail & Digital Banking), SBI, said “Generally, the concessional interest rates are applicable for a loan up to a particular limit and also are linked to the profession of the borrower. This time, we’ve made the offers more inclusive and therefore the refore the offers are available to all or any segments of borrowers regardless of the loan amount and the profession of the borrower.”
We believe zero processing fees and concessional interest rates within the festive season will make homeownership cheaper , Setty added.
Punjab commercial bank , on Citizenship Day , announced festive offers on home loans at 6.60 percent applicable after all transfer too. PNB has also waived off processing fees and has decreased rate of interest on home loans above Rs 50 lakh by 50 bps.
What is driving the house loan rates?
According to analysts, factors like low rate of interest , demand for bigger homes and secured proposition are a number of the factors driving the attractive home equity credit rates.
Banks are becoming low-cost deposits. On a mean , large banks’ cost of deposit is at sub-four percent then is that the marginal cost of deposit, said Jyoti Roy, Analyst at Angel Broking.
Assuming it’s 4 percent and that they are lending at a mean rate of seven percent for home loans, they’re still making a selection of on the brink of 280 to 300 basis points on housing loans, Roy adds.
Roy said that banks had the many advantage of lower-cost of borrowing as compared to NBFCs.
Home loan may be a safer bet for banks and lending institutions, as during a case of default the bank can recover an outsized amount by having the property as a collateral.
“It may be a good sign, for banks, the house loan book is safest then has the demand for housing arrived. In urban areas, an honest number of registrations are happening and reduced interest rates by banks is additionally a driving factor. I don’t see interest rates rising anytime soon,” said Amit Gupta, VP-Fund Manager, PMS at ICICI Securities.
Gupta explained that rates wouldn’t go up because the benchmark gap is reducing because the US 10 year yield was at 1.75 percent and India was at 6 percent, the gap of 425 bps has now increased by 60 bps, because US 10 year yield has declined from 1.75 percent to 1.34 percent and for India it’s moved from 6 to six .19. This difference has increased from earlier 425 bps to 485 bps which is sweet for India.
He said that within the last 12 months, the banks’ home equity credit book has increased by almost Rs 1,25,000 crore. The economy opening up, increased vaccination drive, high income and wish for giant homes are a number of the factors driving home buying, Gupta said.
Slow revival in corporate loan growth
According to analysts, banks haven’t been ready to expand their corporate loan book then the main target has been on expanding the retail book.
For corporates, it makes more sense to borrow from the debt market and for banks to specialise in retail like housing, Roy of Angel Broking said.
A lot of those large banks also lend to big corporates, but within the absence of such transactions, land (secured home loans) seems to be working for the banks, Roy added.
Similarly, Gupta of ICICI Securities said that while corporates have announced CAPEX plans, it’s to be seen when the CAPEX execution will come. It comes only current capacity is fully utilised.
