State Bank of India has done away with the 25 basis points mark up it used to charge retail customers taking a loan to buy a third or a fourth house.

India’s largest bank has taken this step in keeping with its thrust on retail loans, especially home loans, as corporate loan growth has turned sluggish.

SBI’s current card rates on home loans are: 10 per cent (that is 25 basis points above the base rate: 9.75 per cent) for loans up to Rs 30 lakh and 10.15 per cent (40 basis points above the base rate) for loans above Rs 30 lakh. A basis point is equal to one-hundredth of a per cent.

Banks normally charge customers a premium (higher interest rate) if they take a loan to buy a house for the third time.

The premium is to offset the impact of higher risk-weight and provisioning due to regulatory classification of a loan taken to own a third house as commercial real estate exposure.

Bankers say they have come across cases where customers owning ancestral property take a loan to buy a house in the city where they work. Having repaid the first loan, they are ready to take a second loan to buy another property.

However, under the current regulatory dispensation, the customer is considered as owner of two properties and loan given by banks for the third property is reckoned as commercial real estate exposure.

A senior bank official said the decision to give a loan to buy a house, be it the third or the fourth, is solely based on the borrower’s income and ability to repay.

If the customer has repaid two earlier home loans diligently, then the probability of default goes down significantly and the customer could be considered a safe bet for the bank.

>ramkumar.k@thehindu.co.in

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