Banks rush to grab retail home loan share with lending rate cuts & festive offerings
Top banks are rushing to grab the retail share in the festive season by reducing interest rates on loans and with various offers on home loans.
Beena Parmar
Moneycontrol News
Top banks are rushing to grab the retail share in the festive season by reducing interest rates on loans and with various offers on home loans.
State Bank of India (SBI), Bank of Baroda and Andhra Bank cut their base rate while Punjab National Bank has reduced it with effective from September 1.
Ahead of the monetary policy rate decision, SBI, country’s largest lender, cut base rate by 5 basis points (bps) to 8.95 percent. Andhra Bank has reduced the base rate to 9.55 percent from 9.70 percent while Bank of Baroda has reduced base rate from 9.50 percent to 9.15 percent.
On the other hand, the Reserve Bank of India (RBI) is expected to keep interest rates unchanged in the monetary policy decision on October 4.
Recently, led by SBI, most banks also reduced their savings interest rates to 3.5 percent on deposits. This has helped banks reduce their interest outgo and hence shrink their cost of funds.
Hence, the rate cuts by banks is not an indication of overall interest rates decline. They are passing on the deposit rate cut benefit to the customers to stay retail competitive while the corporate loan growth has remained muted given the slowdown in the economy.
Mayank Mehta, Executive Director of Bank of Baroda told Moneycontrol, "Our cost of funds are coming down, hence we decided to pass it on to the customers. There is decent retail off-take and it has been consistently growing for banks."
On the other hand, banks such as ICICI Bank and Axis Bank are doling out festive offers on home loans to make borrowing more competitive.
Axis Bank launched an offering called Shubh Aarambh, promising a waiver of 12 EMIs if the borrower does not default on any instalments, in an effort to improvise borrower behaviour.
Recently, SBI had also launched a new scheme campaign ‘Hamara Ghar’ (our home) that caters to the affordable housing segment. The loan carries a fixed rate of interest for two years up to a loan amount of Rs 30 lakh. SBI also waived processing fees on all home loans.
On Thursday, ICICI Bank announced an offering which provides a 1 percent cashback on EMIs starting from 36th EMI.
"People’s buying momentum is high during the festive season and you just play on the sentiments and give more incentives…When a customer is on the edge of decision on home loans, it matters," Anup Bagchi, Executive Director, ICICI Bank, said in a call after the announcement
For new home loan borrowers, ICICI Bank has come up with a package of three – cashback on debit and credit card spends, 20 percent step-up loans for bigger houses and 1 percent cashback on EMIs of home loans for a 30-year loan.
According to Bagchi, the aspiration levels of Indians is increasing and there is a generational shift in the last 10-15 years to now.
"In the last 15 years, the average age of taking loans was higher before and this is coming down and there is much longer working cycle to repay the loan," he added.
The retail loan growth as on July 2017 stood at 15 percent, as against 18.8 percent a year ago. Within that, housing loan growth has also slowed to 10.5 percent from 17.2 percent year-on-year, RBI data showed.
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