PSBs bank on low rates in home loan war

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Mumbai, June 13: In the booming home loan segment, it is the public sector banks (PSBs) which are now having a clear-cut advantage over their private and foreign counterparts. Some of the big PSBs, including State Bank of India, Bank of Baroda and Canara Bank, are offering both fixed and floating home loan products almost 75-100 basis points cheaper than private and foreign banks.

After the recent rate hike by the Reserve Bank of India (RBI), the private sector and foreign banks like ICICI Bank and Standard Chartered have also raised rates to manage the rising cost of funds.

However, their public sector counterparts are yet to join the bandwagon and are unlikely to react before the quarterly review of the RBI Annual Policy slated for next month. As a result, public sector banks, now following the same marketing model like the private sector and foreign banks, are now offering competitive rates in home loan segments.

The country's largest lender, SBI, extends loans at 9.75% in the fixed regime, for a 5 to 10-year tenure, whereas ICICI Bank – which has recorded the largest incremental growth in the housing finance segment in recent times -- has pegged it at 10.75%, 100 basis points higher in the similar category.

Similarly, the floating rate of state-owned BoB is 8.75% for the tenure between 5 to 15 years as against 9.5% of Standard Chartered Bank or ICICI Bank – a difference of 75 basis points.

To make life further tough for the private and foreign banks, PSBs have beefed up their marketing campaign to sell home loan products. For example, BoB has launched a pilot project in Mumbai, named Project Parivartan, in which BoB officers are going door-to-door to sell home loans. This move is probably for the first time that a public sector bank is going door-to-door to sell their products, initiatives normally associated with private banks.

The project, according to BoB sources, has become a huge success for the bank and may be rolled out in Ahmedabad and Chennai this month. The bank has deployed its own resources for this initiative and not outsourced to any outside agency. About Rs 50 crore deals have been closed since the project’s inception in mid-April.