The entire home loan market was electrified by the bold announcement of an interest rate of 8 per cent by SBI for the first year, for its new home loan consumers. SBI made it clear that the reduced rate was applicable only for the first year and would revert to normal floating rates at the end of the first year. It was not very clear what this revised rate would be.
Gimmick or Need-based Cut
With home sales falling, banks and housing finance companies are on an overdrive to expand their credit portfolio, leading to claims and counter-claims. SBI fixed an interest rate on all loans including the transferred loans at 8 per cent for a year, and this disturbed HDFC, the numero uno player in the housing finance market. After SBI's announcement, HDFC Chairman, Deepak Parekh, said SBI’s 8 per cent home loan was just a 'gimmick'. The 8 per cent rate is applicable only for the first year, and there is no clarity on rates thereafter.
Agreeing with Deepak Parekh, Omaxe CMD Rohtas Goel too called SBI's 8 per cent rate a marketing gimmick and nothing else. He also said the RBI had started lowering interest rates after realizing that nobody was going to gain if demand for housing was killed, but the actions were not enough. "Interest rates have come down to 11 per cent, somewhere it is 11.5 per cent to 10.50 per cent. Nothing will happen by taking these actions. Something major should be done by RBI and government both to start the rally again."
Banks who have joined the '8 per cent gimmick'
After State Bank of India, state-owned Central Bank of India has decided to freeze interest rates for new home loans at 8 per cent for a period of one year. Other public sector banks are also planning to follow suit.
According to Central Bank, there is no upper limit set for the loan amount under this scheme. After a period of one year, the interest rate will be reset to the respective schemes. Central Bank also reduced the lending rate for housing loans up to Rs 5 lakh by 0.5 per cent to 8 per cent from Wednesday under a special package. Ramnath Pradeep, Chairman, Central Bank, said the bank's 8 per cent home loan rate scheme is available only till March 2009. The rate of interest for those who avail of the offer is applicable for one year, he said. The bank's loan book is expected to grow by about Rs 500 crore thanks to the scheme, he said.
"The scheme, which will be applicable for all loans taken till March 31, is aimed at pushing credit flow to the housing sector," Central Bank Executive Director, Ramnath Pradeep said.
What are private banks thinking?
Meanwhile, HDFC said it would reduce rates if cost of funds further comes down. HDFC chairman Deepak Parekh said, "If our cost of fund comes down, we will certainly reduce rates."
Talking about the future of home loan rates, MD & CEO of India's largest private sector bank, ICICI Bank, KV Kamath, feels that home loan rates will fall to single digits in the near term. He said, 'In 2000 mortgages were at 14 per cent, then they came down to 7.5 -8 per cent. They went back to 13.5-14 per cent. Now, they are on a downward trend. I hope in the near-term mortage rate will come to a single digit. For some sections they are already at single digit.'
Clearly, the home loan market is hotting up with promise of more goodies to come in the near future.
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