SBI Hike Home Loan Interest Rates

State Bank of India (SBI), the largest bank in India and one of the leading players in the housing finance market, has raised interest rates on home loans. Although the bank will continue with its 8% teaser rate — which the SBI had introduced more than a year ago — for the first year, it has increased rates for the subsequent years, effective April 1. The hike in home loan rates by SBI was triggered by the recent increase in its cost of funds.
Till March 31, SBI had two schemes — The Easy Home Loan (up to Rs 50 lakh) and Advantage Home Loan (above Rs 50 lakh). ‘‘From April 1, both the schemes have been merged and extended for a month,'' an SBI spokesperson confirmed to TOI. ‘‘The rates applicable for new loans sourced from April 1 till April 30 are 8% for the first year, 9% for the second and third years and floating rate at 1.75% below SBAR (SBI's equivalent of prime lending rate, or PLR) thereafter,'' the spokesperson added.
So in effect, the home loan rates for the second and the third years have gone up by 50 basis points (100 basis points=1%), from 8.5% earlier to 9% now. While fourth year onwards, at the current structure, the interest rate will be at 10% per annum, since currently SBAR is at 11.75%. Earlier, from the fourth year onward, the floating rate was at 2.75% below the SBAR and the effective rate was 9%.
Under the new rate structure (assuming a 10% rate from the fourth year), on a 20-year loan of Rs 30 lakh, a customer would have to shell out about Rs 3.9 lakh over the tenor of the loan. Thus the effective rate that the customer would be paying over the 20-year period is 9.5%.
Explaining the rationale for hiking rates on home loans, the SBI spokesperson said it mainly reflected ‘‘the increased cost of funds from April 1 stemming from the new methodology for paying interest in savings bank accounts on daily balances.'' In April 2009, Reserve Bank of India (RBI) had mandated all the banks in India to move to a new methodology of calculating interest rates on savings bank accounts that would add interest on a daily basis. This is a significant departure from the earlier practice of calculating interest rate on minimum balance after the tenth of every month.
For sometime now, with the annual rate of food inflation hovering around 20% level and the yields on benchmark 10-year government securities around the 8% mark, bankers and home finance veterans were talking about the possibility of a hike in interest rate in the economy. And now with SBI, the country's largest bank, hiking housing loan interest rates, industry players are almost sure that interest rates have bottomed out in the current cycle.
Lately a number of banks and financial institutions, including the country's home loan pioneer HDFC, have withdrawn their home loan products at 8% or at a slightly lower rates, and are moving to a more sustainable interest rate structure.

Axis Bank removes penalty on home loan pre-payment

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Bank offers 25-year tenure, flexible plans to raise loan offtake

Axis Bank, the third largest private sector bank by assets, has taken the lead in scrapping this practice on home loan. The bank has decided not to charge pre-payment penalties to its home loans even when customers shift a loan to a competing bank.
Others, including State Bank of India, Housing Development Finance Corporation and ICICI Bank impose pre-payment penalties when any of their customers seeks to refinance a home loan through fresh loans at lower Home Loan Interest Rates.
Axis Bank Home Loan is the only Home Loan that does not include any pre-payment penalty charge from customers either for part pre-payment or full pre-payment.
SBI and Punjab National Bank have no pre-payment charges if the customer prepays from own resources or if half of the loan is repaid. But if the pre-payment is to be refinanced by any other institution or bank, the customer has to pay 2 per cent penalty on the money paid.
“At Axis Bank, we believe customers have the right to exercise their choice to shift if they find a rate advantage,” said Manju Srivatsa, president of retail banking at Axis Bank.
Axis has close to 50 retail asset centres, which are specialised units dedicated to processing retail loan applications ensuring quicker turnaround time.
Though a small player in the market, Axis Bank's new CEO Shikha Sharma is bullish about growing the bank at a pace it has never seen before. The retail business is expected to fuel a substantial part of the bank’s growth.
The bank had a home loan book of Rs 12,049 crore at the end of the second quarter. It plans to grow its market share through customer-friendly home loan products with a variety of repayment options, like extended tenures, lower rates of interest and quick processing time.
HDFC Home Loan allows pre-payment of only 25 per cent of the opening balance at a time without any charge. For any amount over and above that, there is a pre-payment penalty of 2 per cent.
ICICI Home Finance allows pre-payment of a loan if 12 equated monthly installments (EMI) are kept as outstanding. In case of complete closure of the loan, the bank charges a penalty of 2 per cent of the amount prepaid.
HDFC managing director Renu Karnad Sud said, “Instead of expanding the home loan market, banks are only refinancing through teaser schemes. Pre-payment penalty is charged by banks and institutions because we have a cost to our funds and if we pre-pay, we have to pay a penalty to our lenders. We do not want to penalise customers. We only discourage them from borrowing from other banks to prepay us.”
Axis Bank also has a longer repayment period of 25 years instead of 20 years most players have today. The bank also has a bouquet of innovative home loan products targeted at different category of customers.
For example, it has an extended tenure loan targeted at the young salaried group, who aspire to buy a home with smaller EMIs and a longer repayment period.
“This is to encourage youngsters who have begun earning to buy an aspirational property. This category does not want a huge EMI outgo, but does not mind an extended tenure. The average loan size is Rs 12 to 15 lakh and these schemes have helped us maintain a year-on-year growth of 25 to 30 per cent,” said Srivatsa.
Axis Bank's ‘Step Down home loan’ targets families where parents are nearing retirement and children ha­ve just started earning. The loan is structured in such a way so as to offer higher EMIs at the start and lower installments at a later stage.
These are all floating rate loans with an interest rate of 8.75 per cent for loans up to Rs 30 lakh and 9.25 per cent for loans above Rs 30 lakh.
Axis Bank also has a special home loan scheme that offers an interest rare of 8 per cent for the first year and floating rate for the remaining tenure of the loan where it competes with SBI Home Loan, the pioneer of the 8 per cent home loan scheme.
At present rates, the interest rates applicable for customers from the second year will be 8.75 per cent for loans up to Rs 30 lakh and 9.25 per cent for loans above Rs 30 lakh.