This year the State Bank of India (SBI) had announced a special home loan scheme in which it had capped the interest rate at 8% for one year. The scheme came into effect from February is expected to be extended by another five months up to September.
When SBI announced the scheme it had caused a flutter in the market, popped up the competition in the banking and home finance space. Reacting to the SBI announcement Deepak Parekh, chairman of the country’s largest mortgage company HDFC, even termed the reduction in interest rates a ‘gimmick’. Afterward, Canara Bank and LIC Housing Finance also reduced rates to attract customers. Although, SBI’s concessionary offer remains the lowest to date.
Officials’ privy to the development pointed out, “The proposal is to extend the home loan scheme up to September to benefit those who felt the April deadline was insufficient for availing of the scheme”. They added, “The proposal has been forwarded to the chairman’s office and approvals for the extension will be made public shortly. The deposit level at the bank is robust and SBI can afford to offer the loans at lower interest for an extended duration”.
Moreover, on Saturday SBI extended soft loans being offered to its existing small and micro enterprise customers under SME Help (to purchase fixed assets, including generating sets) and SME Care (for working capital loans) schemes to September 2009. Therefore term loans in the SME Help scheme will now be available for two years at 8% against one year when the scheme was launched earlier this year.
The bank has even slashed the interest rate to 8% for all new SME customers with loan requirements up to Rs 5 lakh. For the working capital also the reduced rates will be applicable as well as term loans unless they are offered they are covered under the credit guarantee scheme for small and micro enterprises (CGTMSE).
Furthermore, for new SMEs with fund-based loan requirements above Rs 5 lakh but below Rs 25 lakh, the bank is offering fixed rate of interest of 10% for two years to units covered by CGTMSE.
As per information provided by officials besides home loans, the bank will probably extend the deadline for auto loans and for warehouse-based receipts loans from May to September. However these schemes, are offering auto loans at 10% for one year and ware house based receipt loans at 8%, and were announced on February 20. According to banking analysts lower-than-expected response from borrowers may have resulted in SBI extending its loan schemes.
At present the demand for home loans is very low because buyers are waiting for property prices to fall before they can avail of the reduced interest scheme. Moreover Canara Bank's decision to offer a fixed rate of 8.25% on home loans up to December '09 might have also impelled SBI to extend its own scheme till September '09.
Recently, PSBs have been under intense media glare for failing to reduce their benchmark prime lending rates (PLR) to the same extent that key policy rates have been systematically brought down to encourage bank lending. In fact , PSBs say that over three-fourth of their disbursals are at sub-PLR levels and when they will reduce the PLR they will be forced to reduce interest rates further on loans that are linked to the prime rate such as on farm loans. Therefore they say this can affect their profitability.
Wednesday, April 22, 2009
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