SBI Cutting Interest Rate may set off a housing Loan War

After holding rates for months, banks have kicked off an interest rate war to attract housing loan customers.

State Bank of India (SBI) on recently cut its home loan rates by 0.25% matching rival lender HDFC’s new offer announced last week. With two major lenders cutting rates, others cannot afford to stay put.

SBI’s interest rate for new housing loans for women will be 9.85% compared with 10.10 per cent earlier. 

Others can get home loans at 9.9% instead of 10.15%. The new rates will be applicable from April 13, 2015.

The interest rate for existing floating rate housing loans has also been reduced by 0.15%. SBI cut its base rate to 9.85% from 10% with effect from April 10, 2015. The revised EMI per lakh for a loan tenure of 30 years is Rs. 867 (for women) and Rs. 871 (for others) compared with Rs. 885 and Rs. 889, respectively, before the rate cut. Last Friday, HDFC, the country’s leading standalone housing finance compannies (HFCs), cut its housing loan rate by 0.20% to 9.9%.

So far in 2014-15 (up to February 20, 2015), banks collectively reported incremental housing loan growth of Rs. 78,800 crore against Rs. 71,400 crore in the year-ago period, according to RBI data. However, the growth of the home loan portfolio slowed to 14.5% against 15.6%.

Since January, the RBI has been urging banks to cut lending rates. But, banks did not oblige even after the RBI cut policy rates. 

After some plain-speak by RBI Governor Mr. Raghuram Rajan last week, banks finally blinked.

While SBI & HDFC Bank pared their base rate (minimum lending rate) from 10% to 9.85%, ICICI Bank cut it to 9.75%..

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