If you are planning to buy your dream home, you still have something to cheer about amidst the buzz that lending and property rates are set to go up.
State Bank of India (SBI), the country’s largest lender, plans to retain teaser home loan rates beyond March 31. However, it is yet to formally announce the extension.
According industry sources, the move by the banking major might prompt other lenders to follow suit.
A senior SBI official said the special home loan rate had helped its retail lending book to grow. “There is demand from the field offices (circles) to continue with this offer beyond March, for better credit growth in 2010-11.”
“But the final decision rests with the corporate centre, which will look into the cost and liquidity conditions.”
A senior official in a housing finance company, however, had reservations. “Giving loans at 8 per cent is fine. But to keep it fixed for another year might be quite difficult.”
“With the Reserve Bank of India’s recent hike in repo and reverse repo rates by 25 basis points and an indication of further tightening, interest rates are expected to go up by 100-150 basis points in the next 12 months. Lower lending rates will put pressure on any finance company’s balance sheet,” he added.
Some market analysts observed that the bank could afford to lend at these rates because it has a reserve surplus of close to Rs 40,000 crore.
Last year, when SBI had launched its teaser loan products, HDFC Chairman Deepak Parekh had called it a ‘gimmick’. Soon after, in December, HDFC launched a fixed-cum-floating rate product.
SBI kicked off the rate war in January 2009, when it offered a fixed rate of 8 per cent for the first year. Following this, the bank launched two home loan products — SBI Easy Home Loan and SBI Advantage Home Loan.
The former was meant for loans up to Rs 30 lakh, with rates of 8 per cent in the first year and 9 per cent in second and third years. At present, the rates stand at 8 per cent for the first year and 8.5 per cent for second and third years. From the fourth year onwards, customers have the option of choosing a floating rate at 2.75 per cent below the benchmark State Bank Advance Rate (SBAR). The “advantage loan” was for amounts above Rs 30 lakh.
The SBI move forced others to follow, including HDFC and Axis Bank. Axis Bank exited the two-year fixed rate market first in February, almost two months before schedule, citing high cost of funds. HDFC’s offer closed on February 27, following an extension of two weeks over the February 14 deadline.
