SBI's fixed home rates up 25-50 basis points

To charge 8% interest on maturity period of up to 5 yrs from the current 7.75%.

A fortnight after housing finance company Housing Development Finance Corporation (HDFC) raised interest rates on housing loans, the State Bank of India (SBI) today followed suit.

The country's largest commercial bank increased its fixed interest rate on home loans by 25-50 basis points. One basis points is one hundredth of a percentage point. SBI, however, kept the floating interest rates unchanged.

ICICI Bank had recently hiked its negotiated home loan rates although the formal rates remained unchanged. LIC Housing Finance was considering a plan to hike rates in the near future, said AK Dasgupta, chief executive, LIC Housing Finance.

For loans that have a maturity period of up to 5 years, SBI will now charge 8 per cent interest, up from the current 7.75 per cent, the bank informed the Bombay Stock Exchange.

Interest on loans with a maturity period of 5-15 years has been increased by 50 basis points to 8.75 per cent from the existing 8.25 per cent.

For loans with a maturity of above 15 years and up to 20 years, interest rates have been increased by an identical margin to 9 per cent from the current 8.50 per cent.

The revised fixed interest rates for fresh housing loans or for the switchover of floating rate loans to fixed-rate loans would apply with immediate effect, SBI said.

The bank's Chairman AK Purwar, however, told a news agency in Delhi: "I have not hiked interest rates on housing loans. It is just a restructuring of the penalty for movement from floating to fixed-rate loans."

Sources said the bank had raised fixed-rate loans as more customers were opting for such loans now instead of those with floating rates.

HDFC, too, had raised its rates only on the fixed-rate loans segment. The rates on offer now range from 7.75 per cent to 8.5 per cent.

ICICI Bank, the fastest growing player in the market, has no intention to push up rates now. "We have reviewed the situation, and we are comfortable with our present rates. Our rates are linked to the cost of funds which remain unchanged since they are not linked to the yield on government securities," said V Vaidyanathan, senior general manager, ICICI Bank.

However, it is understood that the bank has reduced the spread between the negotiated rate and the rack rate. In other words, without formally changing its home loan rates, ICICI Bank is charging its customers higher rates on home loans.

An ICICI Bank spokesperson today said it had lifted the 'force majeure' clause, which gave it the discretion to move up rates if there were adverse money market developments.

This would mean that customers of its fixed-rate loans will not be required to cough up higher rates even if money market rates move up -- a discretion which the bank was enjoying till now.

Renu Kakkad, executive director, HDFC, ruled out any further hike in the rates now. "We have already increased rates and do not feel the need to do so in the immediate future unless there is great volatility in the bond markets," she told Business Standard.

The yield on the 10-year government security rose by 150 basis points till mid-August from the beginning of 2004-05. Since then, it has come down by about 50 basis points.