RK Bammi, ED, Axis Bank, said, The interest rate on the fixed rate product is higher than that currently in place for floating rate loans but this product is aimed at customers who do not want uncertainty.
For floating rate loans, Axis Bank charges 10.75% for loans below R25 lakh, 11% for loans between R25 lakh and R75 lakh and 11.25% for loans above R75 lakh. It looks like interest rates are peaking, said Bammi adding that the bank had grown its home loan portfolio by about 25% y-o-y between April and July this year. While the bank has been offering fixed rate loans at 14%, there were few takers, he said.
Ahead of the festive season banks have been wooing customers with a variety of products. HDFC launched a product that allows customers home loans at a fixed rate for the first three years or five years.
A couple of weeks earlier ICICI Bank had unveiled a similar product giving customers an option to borrow at a fixed rate for either the first year or the first two years. That would eliminate the volatility in rates in the initial years of the loan. State Bank of India (SBI) has gone a step further and offers borrowers a rate that is 25 basis points lower than is on its rate card. Bank of India and Central Bank are both lending to home buyers at the base rate while most banks have now waived processing charges. Axis Bank is among those that does not charge a pre-payment penalty like Indian Bank, Punjab National Bank and Bank of India. HDFC, SBI, ICICI and LIC Housing together account for 55% of the home loan market currently estimated at R5 lakh crore. HDFC is the market leader followed by SBI. Industry watchers point out that ICICI Bank and HDFCs fixed rate, for the newly launched product are on the higher side possibly because the interest rate cycle is set to peak.
Since interest rates appear to be peaking, these players have decided to offer fixed rates in the initial stages of the loans, explains an analyst.