Private Banks soon to cut rates while Union Bank and PNB does so

Home loan rates have gone down to their lowest level in 6 years with State Bank of India, the India's largest lender, reducing the efficient rate to 8.6% from 9.10%.

While SBI cut its one-year minimal cost of lending rate (MCLR)--the benchmark to which home loans are linked --to 8%, against 8.9% earlier, it kept the spread above MCLR at 60 basis points, against 20 basis points earlier. So, home loans up to Rs 75 lakh, earlier available at 9.1%, can now be taken at 8.60%. For others, the rate would be 8.65%, against 9.15% earlier.

Besides SBI, Union Bank of India and Punjab National Bank also cut rates. Private sector banks like ICICI Bank are predicted to abide by suit.

The elimination in the lending rates by numerous public sector banks will make the cost-effective home loan scheme, declared by PM Modi on Sunday , accessible at a little over 4% for consumers seeking loans of up to Rs 9 lakh. Information of the scheme are yet to be declared. The elimination in MCLR will mean that new borrowers will get loans at the less expensive rates. Considering that home loans are connected to one year MCLR, the rates are snapped in for 12 months. Older loans will get the benefit of the new rates only after their one-year lock-in ends. Those who had availed loans before April 2016 would have their EMIs linked to the earlier benchmark, the base rate. These borrowers will have to enter into a fresh contract with the bank (by paying a small fee) to get loans linked to MCLR.

SBI has also reintroduced a teaser rate loan, where loans will be avilable at 8.5% for the first two years and at a floating rate in subsequent years. These loans were discontinuyed five years ago after RBI frowned on them. Other banks which have announced lower rates with effect from the New Year include State Bank of Travancore, IDBI Bank and Indian Overseas Bank. Top officials of SBI said that home loans would provide the bank with an alternative to parking funds in government bonds where the return is less than 7%.

Meanwhile, banks expect the interest subvention on lo the interest subvention on loans for affordable homes and home extensions and small enterprises to counter the slowdown caused by monetary contraction following demonetisation. The influence of the schemes is expected to be felt in lending and on the overall economy in the first quarter of FY18.