Top banks have reduced interest rates on new home loans, including balance transfers, as they compete for a bigger pie of the reviving housing market.
Kotak Mahindra Bank, on September 9, set the tone by slashing home loan rates by 15 bps to 6.50 percent. The limited offer, available for two months, is applicable across all loan amounts and linked to the borrower’s credit profile.
“As the world has changed and we are spending more time at home, our lifestyles have also evolved. People are looking for comfortable residences where the entire family can work, entertain and spend quality time together,” Ambuj Chanda, President, Consumer Assets, Kotak Mahindra said in a media statement.
On September 16, India’s largest lender State Bank of India and Bank of Baroda had slashed home loan rates to 6.70 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 the same level as compared to previous 15 bps higher than the ongoing rate.
C.S. Setty, Managing Director (Retail & Digital Banking), SBI, said “Generally, the concessional interest rates are applicable for a loan up to a certain limit and are also linked to the profession of the borrower. This time, we have made the offers more inclusive and the offers are available to all segments of borrowers irrespective of the loan amount and the profession of the borrower.”
We believe zero processing fees and concessional interest rates in the festive season will make homeownership more affordable, Setty added.
Punjab National Bank, on September 17, announced festive offers on home loans at 6.60 percent applicable on balance transfer too. PNB has also waived off processing fees and has decreased interest rate on home loans above Rs 50 lakh by 50 bps.
What is driving the home loan rates?
According to analysts, factors such as low interest rate, demand for bigger homes and secured proposition are some of the factors driving the attractive home loan rates.
Banks are getting low-cost deposits. On an average, large banks’ cost of deposit is at sub-four percent and so is the incremental cost of deposit, said Jyoti Roy, Analyst at Angel Broking.
Assuming it is 4 percent and they are lending at an average rate of seven percent for home loans, they are still making a spread of close to 280 to 300 basis points on housing loans, Roy adds.
Roy said that banks had the significant advantage of lower-cost of borrowing as compared to NBFCs.
Home loan is a safer bet for banks and lending institutions, as in a case of default the bank can recover a large amount by having the property as a collateral.
“It is a good sign, for banks, the home loan book is safest and so has the demand for housing arrived. In urban areas, a good number of registrations are happening and reduced interest rates by banks is also a driving factor. I don’t see interest rates going up anytime soon,” said Amit Gupta, VP-Fund Manager, PMS at ICICI Securities.
Gupta explained that rates would not go up because the benchmark gap is reducing as 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 has moved from 6 to 6.19. This difference has increased from earlier 425 bps to 485 bps which is good for India.
He said that in the last 12 months, the banks’ home loan book has increased by almost Rs 1,25,000 crore. The economy opening up, increased vaccination drive, high disposable income and need for big homes are some of the factors driving home buying, Gupta said.
Slow revival in corporate loan growth
According to analysts, banks have not been able to expand their corporate loan book and so the focus has been on expanding the retail book.
For corporates, it makes more sense to borrow from the debt market and for banks to focus on retail like housing, Roy of Angel Broking said.
A lot of these large banks also lend to big corporates, but in the absence of such transactions, real estate (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 has to be seen when the CAPEX execution will come. It comes only when current capacity is fully utilised.Internet Explorer Channel Network