SBI may reduce home loan rates

NEW DELHI: With better liquidity, State Bank of India is considering to cut interest rates on home loan.

While the bank’s chairman OP Bhatt said if housing loan rates need to be revised, it would to be downwards only, a final decision will be taken by SBI’s asset-liability committee. Bhatt said the reduction could either be through a discount on existing rates or by cutting the interest rates.

The statement follows similar measures initiated by ICICI Bank and HDFC, which lowered rates ahead of the festive season till October 31. Any cut by SBI will bring in more competition among the banks to cut home loan rates.
At present, SBI offers home loans at 12.75% at fixed rate, while the the floating rate loans range between 10.75% and 11.25%, depending on tenure.

Home loan rates rose by over three percentage points in last one year from around 9% to 12% and made life difficult for borrowers. But, the reduction this time will benefit only new borrowers as banks are offering discounts on current rates. They are not cutting the benchmark rate. All variable home loan rates are connected to a bank’s benchmark rate. Existing borrowers will benefit only if the benchmark rate is cut.

But, if the present conditions continue for some more time and RBI cuts repo rate in its monetary policy review on October 30, banks will cut benchmark rates also.

On Reserve Bank of India’s (RBI) stand on interest rates, Bhat said rates would definitely not go up. Statutory rates might remain the same or be lowered by 25 basis points. With inflation down at 3.2%, the general expectation is that RBI might resort to lowering of some of the statutory rates like repo rate, which was hiked to 7.75%. The repo rate is the interest rate at which RBI offers short-term loans to banks. Any cut in the repo rate will lead to lowering of the variable home loan rate.