Home Loan : SBI Vs HDFC

SBI (State Bank of India) reduced its base rate (BR) by 0.25% to 9.75%, becoming the lender with the lowest BR among large banks.

The SBI management has realised that its main competitor in the housing loan market is HDFC (Housing Development Finance Corporation.)  As on 2012, June end, SBI controlled 25.5% of the housing loan market.

SBI first reduced its spread (the margin above the BR) on housing loan in early August, 2012 following the RBI's (Reserve Bank of India’s) decision to reduce the Statutory Liquidity Ratio requirement for banks. The decision released Rs. 10,000 crore for SBI.

Following the reduction on spreads on housing loans, the effective interest rate for new customers came down by 0.50% to  0.85%, depending on the loan amount.

And, following the cash reserve ratio (CRR) cut of 0.25% by RBI, which released Rs. 2,500 crore for the bank, SBI decided to reduce the BR by 0.25% to 9.75 per cent, a move which will further bring down the interest rate, by a similar magnitude. In housing loans, SBI customers will enjoy a 0.50% to 0.85% lower rate than counterparts in HDFC.

People connected with banking, however, said while the lower interest rate gives SBI an edge, delivery of home loans remains a challenge. Also, SBI might not enjoy its ‘best price’ proposition for long, as HDFC Bank has already hinted it would be cutting its own BR.

HFCs (Housing finance companies) would also cut rates once the CRR cut reduces the overall cost of funds. This could happen in a month.

Historically, private sector entities are known to process loans faster. “The valuation of property and legal checks are done internally by the private players but still outsourced by SBI,” said an SBI official.

In addition, banks in India face another hurdle when it comes to funding of inter city home loans.

“If a person is based in Mumbai, for example, and wants to buy a property in another city, he has to approach a bank’s branch based in the city where the property is located. However, HFCs  have the flexibility to fund any property from any other city,” said an official of a bombay based leading HFC.

Private entities also gain due to numerous tie ups with builders. They also offer commissions to individual agents who sell the product, apart from the builder — a practice SBI is yet to formalise.

Mr, Pratip Chaudhuri, Chairman, SBI, said, “We are also having tie-ups with builders. We may not sanction a loan within 48 hours but we definitely do in 4 days,”

SBI  - Home Loan  Rate                          

Up to Rs. 30 lakh - 10.0%

Rs. 30 lakh to  Rs. 75 lakh  - 10.15%

Above Rs. 75 lakh - 10.15%

HDFC -  Housing Loan Rate

Up to Rs 30 lakh - 10.5%

Rs 30 lakh to  Rs 75 lakh - 10.75%

Above Rs 75 lakh  - 11.0%

Src: BS

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