Lenders see a surge in home loan disbursements ahead of festivals

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In anticipation of the demand for home loans, State Bank of India, Punjab National Bank, Bank of Baroda, and private lenders Kotak Mahindra Bank and Housing Finance Development Corp. (HDFC) announced attractive home loan rates, according to lenders due to faster monetary policy transfer.

Home loan rates are now at the level of deposit rates as of early 2019. While deposit rates have also fallen since the start of the easing cycle, home loan rates have been cut more sharply. Since Shaktikanta Das was named governor in December 2018, the Reserve Bank of India has cut the repo rate by 250 basis points (bps).

With the festive demand in mind, SBI, the country’s largest lender, is offering for the first time credit-linked home loans at just 6.70% regardless of loan size.

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Decadal lows

SBI’s latest rates are 200 basis points lower than the prevailing 8.7% rate as of February 2019, narrowing the gap between current loan and deposit rates. “We expect at least ₹60,000 crore home loan disbursements from now through March 31, “said CS Setty, managing director (retail and digital banking), SBI, on the phone.

The bank’s home loans were ₹5.05 trillion euros and made up 23.4% of the total loan book. Setty said SBI is reducing turnaround time for supplier management and services such as legal advice and ratings, which are critical to the home loan process.

“These critical components are put online through our retail credit management system. Today it takes around 7-10 days for lawyers and appraisers to give their opinion, and by October 31 we will fully digitize supplier management. Where we’ve worked with builders, we want to do it in three days, “he added.

SBI is not alone in this series of price cuts in anticipation of the Christmas season. Private lender Kotak Mahindra Bank has cut its mortgage rate to 6.5% for a limited time. Other banks have also joined the bandwagon by either adjusting interest rates or waiving processing fees. Punjab National Bank announced last week that it would offer home loans at 6.6%, while the Bank of Baroda rates start at 6.75%. HDFC said it would offer home loans starting at 6.7% over the holidays.

With a home loan and home loan (LAP) book of ₹Kotak Mahindra Bank was active in this segment for 55,623 crore. This is a long-term game, according to Ambuj Chandna, President (Consumer Assets) of Kotak Mahindra Bank, and although the 6.5% interest rate is specific to the Christmas season, it will continue to be competitive in home loan pricing even after that period.

The bank, Chandna said, has been increasing its mortgages quite aggressively and has been helped by the low interest rates due to excess systemic liquidity.

Although home loan interest rates have been lowered to stimulate demand, experts believe that such interest rates are unsustainable in the long run.

“These are festive offers, and I believe interest rates will harden and liquidity will decline. I suspect the banking sector’s CD ratio is below 70%. So when you have that much liquidity, some banks get inspired to lend in certain areas, “Federal Bank chairman Shyam Srinivasan said in an interview last week.

What added to this frenzy is the lack of demand for corporate loans, which is leading banks to look for other ways to expand their loan books. Data from RBI showed that lending to industries was up 1% year over year, while retail lending was up 11.2% in July.

SBI’s Setty also believes that borrowers will pay attention to both the quality of service and the interest rate. “It’s not exactly a price war, but rather a realignment. Since the business book isn’t growing, banks will look for secured loan books and a home loan is a better option, “he said.

This competitive pricing of home loans also testifies to the effective monetary transmission or the passing on of the interest rate cuts of the RBI in more concrete interest rate cuts of the bank loans. In its September bulletin, the central bank pointed out how excess liquidity, coupled with its forward guidance, facilitated monetary transmission.

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