With varying interest rates, banks in race to attract home-loan customers

Prospective home buyers will now need to be more cautions while choosing a loan. Banks have been coming up with varying rates of interest as part of external benchmark-linked loan products.

The Reserve Bank of India (RBI) has mandated banks to link all new floating rate personal or retail loans and floating rate loans to MSMEs to an external benchmark. Many banks are now coming up with revised product offerings, in line with the RBI’s circular.

SBI is going great guns with a tagline on its hoardings – ‘Lower interest, higher happiness’ – which displays 8.15 per cent interest, subject to conditions. “If rates are going to be cheaper, this looks like an interesting product. But how long they will be low? This has to be seen,” said M Rama Prasad, a home loan applicant at an SBI branch here.

ICICI Bank has put out an effective interest rate of 8.60 to 8.85 per cent for home loans up to ₹35 lakh for salaried borrowers, which means a spread of 3.45 to 3.70 per cent over the repo rate.

Replying to a question on the bank’s approach to these types of loans during an analyst call, Rakesh Jha, Chief Financial Officer, ICICI Bank, said: “Our approach towards this market benchmarked-linked product is to understand how the market pans out for this product over the next three to four months.”

He said the bank wants to be ‘competitive’ as long as it meets the return threshold, and that it will look at pricing home loans “differently, if at all we would want to do”.

At present, there is a transition phase and, over the next three months, there will be a better sense of how the rate moves. Axis Bank has been offering loans with a spread of 3.40 to 4.05 per cent on floating rate loans for salaried individuals with some variations for different product categories.

Many other banks have also been working on pricing these loans to attract more customers. The interest rates differ from bank to bank as they have been given freedom to choose any one of the external benchmarks, including the RBI’s repo rate. The current repo rate is 5.15 per cent.