The Hindu Business Line : SBI hikes home loan rates

IN what appears to be a clear indication that interest rates on housing loans cannot be held back any longer, State Bank of India, on Monday announced a 25 to 50 basis points hike in its fixed home loan rates with immediate effect.

The floating rates remain unchanged for now.

Mr A.K. Purwar, SBI Chairman, however, said it was not a big hike in rates. "We did it to stabilise the home loan market. Some banks have already done it. We are in line with market trend."

Analysts are of the view that the bank has increased its interest rates primarily to protect its cost of funds and guard against the rising NPAs in this segment.

According to the revised rates, housing loans with a maturity of up to five years will now cost 8 per cent as against the existing 7.75 per cent. Loans with a maturity of 5-15 years, the new rate is 8.75 per cent (8.25 per cent) and for 15-20 years the new rate is 9 per cent (8.50 per cent).

In fact, the bank has decided to extend a `one-time' option to its home loan borrowers, of making a switch over from their present floating rate loans to fixed rate loans, subject to a one-time payment of a 2.75 per cent fee.

SBI's move follows the 25 basis point increase in fixed rates by HDFC in early August. Like SBI, HDFC too had left its floating rates unchanged, at the time. Bankers and financial institutions appear to be of the view that the interest rates in the long term are bound to go up.

A number of banks and financial institutions are understood to have been reviewing their rates in the recent past.

Mr Ashok Dasgupta, Managing Director, LIC Housing Finance Ltd, said that the company would review its rates in the first week of September and take a decision then.

"If we feel we can endure the current rates, we may continue with the exiting rates. Otherwise, we will take a decision accordingly," he said.

Meanwhile, ICICI Bank, an aggressive player in the home loan sector, seems to be comfortable with the existing rates. Mr V. Vaidyanathan, Senior General Manager and head-retail products, said, "Any change in interest rates relates to an entity's cost of funds. We have reviewed our cost of funds and feel that there is no need for us to increase our housing rates at the present time."

SBI's advances to the housing sector during the first quarter ended June 30, 2004, grew by Rs 987 crore taking the bank's total housing portfolio to Rs 18,054 crore. During this time, housing loans constituted 52.28 per cent of the bank's total retail advances.

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