• Investment World
• eWorld
• Brand Line
• Mentor
• Life
• Brand Quest
• The New Manager
• BL Club
• Smartbuy
• Books

Stocks

• Quotes
• SE Diary
• Scoreboard
• Open-End Mutual Fund

Cross Currency

• Rates
  
  

Shipping

• Ports
  
  

Archives

• Yesterday
• Datewise
• Resources
• In Focus
• In Depth
• Events 2007

Group Sites

• The Hindu
• The Hindu ePaper
• Business Line
• Business Line ePaper
• Sportstar
• Frontline
• The Hindu eBooks
• The Hindu Images

Paul Noronha

New package: Mr O.P. Bhatt (right), Chairman, State Bank of India, and Mr T.S. Narayanasami, Chairman & Managing Director, Bank of India, at a press conference in Mumbai on Monday. —

Our Bureau

Mumbai, Dec. 15

Public sector banks have brought cheer to small home loan seekers by cutting rates on Monday under a new package aimed at stimulating demand in the retail housing sector.

Loans up to Rs 20 lakh will now be available at 8.5-9.25 per cent a year for tenures up to 20 years.

The offer will be valid only for new loans up to June 30, 2009.

Currently, the interest rate on these loans average around 10 per cent for most PSU banks.

The package also includes lower margins (borrowers’ contribution), waiving of processing and pre-payment charges and free life insurance cover for borrowers.

These measures were announced at a press conference held by leading public sector banks including State Bank of India, Bank of India and Union Bank of India.

All public sector banks will offer the new loan package with immediate effect, said Mr O.P. Bhatt, Chairman, SBI.

Under the scheme, the interest rate on home loans up to Rs 5 lakh, for a maximum period of 20 years, will not exceed 8.5 per cent for the first five years. The margin for this segment has been reduced to 10 per cent, from the current 20-25 per cent.

This means a borrower can get loans up to 90 per cent of the value of the house.

The interest rate on loans up to Rs 20 lakh for a maximum period of 20 years has been fixed at 9.25 per cent and the margin has been reduced to 15 per cent.

During the first five years, if any bank introduces a home loan product at a lower rate, then the borrowers will be offered that rate. After the first five years the interest rate will be reset from the date of the first drawal and borrowers have the option to go for fixed or floating rates.

The package does not apply to existing home loan borrowers and cannot be swapped with an existing loan.

Explaining the rationale behind offering a package only for new housing loans, Mr Bhatt said that the aim is to increase demand for housing loans, as this will also help boost sectors such as cement and steel.

“The aim of the new scheme is to stimulate the economy. Banks will pass on the benefits of the lower interest rates also to existing customers by way of cut in prime lending rates,” he said.

Mr T.S. Narayanasami, Chairman and Managing Director, Bank of India, and Chairman, Indian Banks’ Association, said “The common man should have the comfort that his or her EMI will not get affected for the next five years.”

For most public sector banks, about 80 per cent of the home loan portfolio is made up of loans up to Rs 20 lakh. The estimate is that about Rs 15,000-20,000 crore would be disbursed under the new package in the two loan categories.

Mr Bhatt said that this move by public sector banks could put some pressure on private and foreign banks to cut rates, as this segment of home loans is a good portfolio with good recovery for all banks.

While banks may take a hit of 2-3 per cent on their margins due to the lower interest rates, it is for a short time and will be made up by windfall profits in treasury incomes, in a scenario where bond yields are falling, Mr Narayanasami said.

Mr R.R. Nair, Director and Chief Executive, LIC Housing Finance, said the move by the public sector banks would pose a business challenge to housing finance companies. “We would look into a revision in our business models and our lending rates.”

More Stories on : Housing Finance | Public Sector Banks | Real Estate & Construction

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Copyright © 2008, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line