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Rate War Special Schemes: SBI Cuts Home Loan Rates For First 3 YearsBy ugesh sarkar, Section Finance & Taxes
STATE Bank of India has launched two special home loan schemes that assure low interest rates in the first three years, upping the ante for its rivals in the mortgage market, which has turned bullish following a pickup in home sales in May.
HDFC has said it will take a view after the Budget, which is only days away. ICICI Bank said it has reduced interest rates in line with the movement of systemic rates and deposit costs since December `08. "We believe that the home loan segment has robust potential and we would continue to focus on this segment," said an ICICI Bank spokesperson. LIC Housing Finance--the second-largest mortgage finance company--has also reduced home loans for existing borrowers by 50 basis points.  The intensity of the competition between SBI and HDFC is evident from claims and counter-claims from both sides on the superiority of their product. "Even if the borrower gets a better deal for the first three years, his payment over the remaining tenure of the loan will be lower under an HDFC loan," said HDFC joint MD Renu Karnad. The institution's chairman, Deepak Parekh, had recently announced a possibility of lending rates coming down if there is a decline in cost of funds. According to Ms Karnad, there has been a remarkable pickup in home sales. "We are seeing this because of a real reduction in property prices. Builders like Unitech and Lodha have brought down rates in Delhi and Mumbai and are seeing growth in sales." She added that the pickup in sales was so sturdy that prices have started picking up again--a perception echoed by SBI. "There is a definite pickup in home purchases partly driven by a fall in cost of loans and real fall in property prices. There are pockets where the resurgence is so good that property prices have started picking up; it has come a full circle quickly," said an SBI official who did not wish to be named. Source:Economic Times RAte War Special Schemes: SBI Ccuts Home Loan Rates For First 3 Years Click On "Full Story" For More...
The official said rates have bottomed out and there is a possibility that they may go up marginally in the medium term. The official added that the bank has lent up to Rs 7,171 crore till the end of May `09 under the special scheme that offers loans at 8% for the first year. This is a sizeable number considering that disbursements during the whole of FY09 was Rs 9,372 crore. SBI has a home loan portfolio of over Rs 56,000 crore.
"There is a concern among borrowers that a rise in rates will increase their liabilities. We are telling them that their EMIs are frozen for the next 36 months," she said. SBI has introduced two new products--SBI Easy Loan for amounts up to Rs 30 lakh and SBI Advantage Home Loan for loans above Rs 30 lakh. Under both these schemes, the interest would be applied at a special rate of 8% for the first year. Under SBI Easy, interest rates for the second and third years are fixed at 9%. From the fourth year, the customer can choose between a floating rate of 2% below the State Bank Advance Rate (SBAR) and a fixed rate of 1% below SBAR with a five-year reset. SBAR is the bank benchmark rate to which all floating rate loans are pegged. Under SBI Advantage, the interest rate is fixed at 9.5% per annum for the second and third years. From the fourth year, the customer can choose between a floating rate of 1% below SBAR and a fixed rate of 0.5% below SBAR with a five-year reset. At present, both ICICI Bank and HDFC charge 9.25% for loans up to Rs 30 lakh. For loans above Rs 30 lakh, HDFC charges 9.75% and ICICI 10-11%. The 8% special rate was introduced by SBI in February 2009. This scheme was brought out by SBI as an adjunct to an industry-wide special home loan scheme introduced by the Indian Banks' Association at the behest of the government as part of its stimulus package. Although the scheme ends on Tuesday, many bankers feel a new scheme could be announced.
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