State Bank of India - New loan product for affordable homes

State Bank of India  - New loan product for affordable homes

For the affordable homes segment in the up to Rs. 30-lakh category, State Bank of India (SBI) has brought in a new loan product, which carries fixed interest rate for the first two years. In the subsequent years, it turns to a floating rate loan.

“We will give this loan at a fixed rate of 8.50% for two years. After the two-year period, the loan will be linked to the marginal cost of funds-based lending rate (MCLR), with the current spread being maintained,” said Chairman Ms. Arundhati Bhattacharya even as she emphasised that this loan product is not a ‘teaser loan’.

The SBI chief explained that teaser loan is one where the interest rate is fixed for the initial period, but the rate for the following years is not known.

“Here (SBI’s new loan product), it is nothing of the sort. Here, it is very clearly said that this is the spread above the MCLR at which the interest rate is fixed. 

At the end of two years the spread will be the same, only the MCLR linkage will change.

“So, this is a fixed rate product. I don’t think there will be any issues on this. Should there be any queries from the regulator, we should be able to convince them,” she added.

Ms. Bhattacharya said the per annum saving on equated monthly instalment (EMI) on this home loan would be Rs. 19,356. This works out to a saving of Rs.  5,80,680 over the entire 30-year tenor of the loan.

On the bank’s regular loan of up to Rs. 50 lakh, it will charge 8.60% interest. On this loan, the savings to the customer on the monthly EMI would be Rs.  2,333. The per annum saving will be Rs.  27,996 and over a period of 30 years the saving will be Rs. 8,39,880.

“In our book, the average loan size of a home loan is Rs.  30 lakh. So, even for an average (loan) size, your saving is more than Rs. 1,630 per month, which is not a small amount of saving,” she said.

Ms. Bhattacharya said that if existing customers would like to move into the prevailing spread and MCLR, they can do so at a switching fee of a minimum Rs. 10,000 or a maximum of 0.5% of the loan amount.

“We are giving the facility of adding the switching fee to the loan amount so that they don’t have to pay anything upfront,” she added.

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