Private banks are reviewing rates

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New Delhi, Mumbai: Fearing increased competition from public sector banks (PSBs), which in a collaborated manner reduced interest rates on home loans upto Rs 20 lakh on Monday, private players have also started reviewing their rates.

PSBs on Monday announced that they would hold interest rates on home loans of upto Rs 5 lakh and from Rs 5 lakh to Rs 20 lakh at 8.5% and 9.25%, respectively, for five years. More than 80% of home loans come into this segment.

In addition, PSBs also abolished processing fees and pre–payment charges under these brackets of housing loans. While margin requirement for loans upto Rs 5 lakh has been fixed at 10%, that for Rs 5 lakh-Rs 20 lakh bracket would be 15%. Besides, borrowers will get a free insurance cover for the entire amount of outstanding loan under the package.

“After this package, we are also in the process of reviewing our interest rates. If the lending rates are reduced, it would follow the cut in deposit rates, which are very high at the moment,” ING Vysya Country Head (Retail Banking) Uday Sareen told FE. The benchmark prime-lending rate (BPLR) of the bank is 16.75% and it pays 10.5% on deposits for a year.

R Nair, director and chief executive, LIC Housing Finance, told FE ``The margins between our interest rate and the one charged by banks has got wider now. We charge at 11.5% which was quite more than they will be charging now. Hence we are going through the details of the scheme and will chalk out our own strategy within a couple of days. Also, we will be looking at the customers’ behaviour and how the scheme was going to become effective, said Nair.

Hemant Kaul, executive director, Axis Bank, said ``We are closely watching the developments and will take a call whenever it was required.''

Some PSBs have already slashed their BPLR after the recent in cash reserve ratio (CRR)—the proportion of deposits banks keep with the Reserve Bank of India—to 5.5% recently, but private lenders maintained status quo on their interest rates. ICICI Bank has only cut rate on new home loans of below Rs 20 lakh by 1.5 percentage points to 11.5%.