Banks rejig home loan rates to improve off-take

Written by Kumud Das | Mona Mehta | Mumbai | Updated: Dec 31 2009, 04:44am hrs
Banks are now trying to overcome the ongoing slowdown in credit offtake by targeting a higher percentage of home loans through competitive rates.

Though the banking industry has seen credit off-take of around 10%, which may not rise drastically in the next three months, the banks are confident that they can post healthy growth of 20-30% growth in home loan segments by offering competitive rates.

Special rate of around 8% that was kick started by the State Bank of India is now being offered by all banks and institutions which are vying to grow in their home loan business.

Private sector banks and mortgage lenders, ICICI Bank and HDFC, have also joined the bandwagon by offering special home loan rates in the recent past.

State-owned lender Bank of India (BoI) has also decided to cut its interest rates on home loans since January 1, 2010.

Through this reduction in interest rate, the bank expects to achieve a sanction of Rs 1,000 crore in home loan portfolio. Talking to FE, M Narendra, executive director of the bank, said, We are likely to achieve 20% growth in our home loan portfolio during the current fiscal as against the last fiscal.

Union Bank of India, however, is not in a mood to go for any further rate cuts. Rather, it is planning to extend the deadline of the special home loan scheme from January 31, 2010, to the end of the fiscal.SL Bansal, general manager (retail), Union Bank, said almost 90% of the home loans were meant for semi-constructed houses in which the disbursement happens over a period of 24-36 months. So, it makes sense for the borrowers to go for such a rate which was fixed for three years altogether, says Bansal.

IDBI Bank, has also cut its home loans recently to the minimum rate of 8.25%. CS Jain, executive director (retail), IDBI Bank, said We plan to achieve a growth by 35% in the segment by the fiscal-end. The bank has sanctioned home loan worth Rs 1,900 crore during the current fiscal so far, which means a growth of 20%.

However, LIC Housing Finance (LICHF) is offering home loans at a fixed rate of 8.9% for first three years and the floating rate of 8.75% upto loan of Rs 75 lakh.

Meanwhile Hemant Shah, chairman, Ackruti City, said , Enquiries and sales conversion by first time home buyers for residential apartments have witnessed a boost with certain banks lowering interest rates to 8.2%. However, we want interest rate cuts to dip by another half-a-percent so that the sales conversion gains momentum further. The demand for the residential real estate, which contributes 80% to the overall Rs 70,000 crore real estate sector, is already growing at the rate of 40% in metros.