SBI joins war on mortgages, cuts rates to 9.9 per cent

MUMBAI: State Bank of India joined the rate war on mortgages with Housing Development Finance Corp by reducing its rate, signalling better days ahead for home buyers. The country’s largest banks will offer 9.85% to woman borrowers and 9.90% for others irrespective of the loan amount. The reduction in rates, announced on Sunday, will benefit only new borrowers.

Perceived as the most aggressive stance taken by SBI to protect market share, the reduction in rate to 9.9% will match that offered by the country’s largest mortgage finance company, HDFC, which had lowered rates on Friday in response to lending rate cuts by other large banks earlier in the week. SBI holds about a quarter of the domestic home loan market. “We felt that we need to do a little more for the customers,” said J Lakshmi, chief general manager in charge of real estate, habitat and housing development, at SBI. “We expect we will do better going forward in the home loan.” SBI’s home loan book rose 13.2% year-on-year to about Rs 1.56 lakh crore as of February 2015.

With the central bank keen on passing the benefits of lower rates to customers, SBI, which in the previous rate cycle had introduced teaser rates, may now look at newer products to attract customers. At a time when there appears to be little demand for loans from corporates, home loans is the only green patch for lenders. Credit growth has slowed to 10.2% so far this fiscal year — the slowest pace since the financial year 1996-97, according to data available for the period until March 6.

The existing home loan customers of SBI benefitted with a 15 basis point reduction in base rate to 9.85% announced on Tuesday.

For the bank’s existing borrowers, home loan rate was reduced to 10% from 10.15%, while for women it was reduced to 9.95% from 10.10%. Following the rate revision, SBI’s new home loan customers will pay 10 basis points less than its existing customers.

The difference in rate for old and new customers is the rationale behind Reserve Bank of India’s move to abandon prime lending rate and replace it with base rate — a floor below which banks cannot lend.