In the wake of the Reserve Bank of India’s (RBI) decision to lower the risk weight and standard asset provisioning for home loans, State Bank of India (SBI) on Friday made home loans of more than Rs 75 lakh cheaper for new customers. Such loans will cost salaried women 8.55% and others 8.6%; i.e. 10 basis points (bps) less than rates available till now. Rival ICICI Bank charges salaried women an interest rate of 8.7% and other salaried borrowers 8.75% for loans between Rs 75 lakh and Rs 5 crore, while mortgage specialist HDFC charges between 8.5% and 9% for loans of up to Rs 75 lakh. Rates at the latter two institutions are, however, part of limited-period offers and will apply only to advances made during the month of June at ICICI and for those where the first disbursement is made before July 31 at HDFC. The RBI on Wednesday reduced the risk weight on certain categories of home loans as also the standard asset provisioning requirement on all home loans to 0.25% from 0.4% earlier, freeing up more capital for banks. SBI is the first to pass on the benefits of lower risk weights and provisions to borrowers. The new rules came into effect on Thursday and could potentially free up to Rs 1.22 lakh crore, or 15% of the total home loans outstanding in the banking system as on April 28. The benefits to banks are the biggest for home loans of over Rs 75 lakh. Last month, most large home loan players, including SBI, ICICI Bank, HDFC, Indiabulls Housing Finance and Axis Bank, had aggressively reduced rates on affordable home loans, bringing them down to 8.35% in some cases for loans of up to Rs 30 lakh. In most cases, these discounted rates are available for a limited period, extending to the end of either June or July.
With little demand for corporate loans, lenders are trying to make mortgages more affordable. A CLSA report says mortgage rates are at 12-year lows, having dropped 150 bps in the last two years; every cut of 100 bps is equal to a 5-6% price reduction, CLSA notes. But this may not be enough to nudge buyers – loans for housing grew at 13.4% in April, compared with an 18% growth in the year-ago period, data from the RBI shows. According to data from real estate consultancy JLL India, 27,000 homes were sold across India during the quarter ended March, 35.7% lower than in the corresponding period a year ago. Unsold units fell by only 4.6% to 4.33 lakh. Clearly, there’s no rush. Stocks of unsold apartments are piling up, and even before demonetisation, inventories were not small. At the last count, there were 6.7 lakh unsold residential units across the country with 1.55 lakh in the Mumbai Metropolitan Region (MMR) alone. Registrations of property sales in MMR, which had fallen to a six-year low in November and December, remain low.