MUMBAI: The euphoria over State Bank of India's 40 basis point (0.4 percentage point) reduction in interest rates is likely to get watered down considerably for home buyers. India's largest bank has said that the interest rate on new home loans will be only 20 basis points lower -less than half of the 50 basis point reduction in benchmark rates by the Reserve Bank of India.
This 40 basis point reduction in the bank's base rate will not fully apply to new home loan customers because the bank has revised the spread at which it will advance home loans for borrowers to 20 basis points above its benchmark base rate as against offering loans at base rate earlier.
Sources said that the bank had taken a decision to revise the spreads to protect its margins since the rate cut has been front-loaded without an equivalent reduction in the cost of funds.
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SBI's decision to cut interest rates on new home loans by only 20 basis points is a rare instance where old borrowers stand to gain more than new customers. A woman borrower who had taken a loan in the first week of October would get home loans at the base rate that is 9.7%.
Following the revision in the base rate, the borrower would see her loan rate coming down to 9.3% (base rate) in the next quarter. However, if she delayed taking the home loan to October 5, she will be able to avail the loan at only 9.5%. The lending rates applicable to women will also apply to joint loans where the first borrower is a woman. For all other borrowers, the interest rate would be 5 basis points higher (9.55%).
Sources said that the bank had taken a decision to revise the spreads to protect its margins since the rate cut has been front-loaded without an equivalent reduction in the cost of funds. SBIchairman Arundhati Bhattacharya had earlier suggested that the bank be allowed to come out with a teaser loan-type scheme to incentivize new borrowers. However, the RBI has not been very conducive to the proposal.
Rival lender ICICI Bank has announced a 35-basis-point reduction in base rate to 9.35%.The private bank has, however, not announced the home loan spreads. If the earlier spreads (base rate + 15 basis points) for women and (base rate +20 bps) for other borrowers continue, the home loans would be available at 9.5 and 9.55%. However, if the bank continues to offer loans at a markup to SBI, as has been its strategy in the past, the spreads may get revised. Both ICICI and HDFC were offering loans at 15 bps above SBI rates.
Besides revising spreads on its home loans, SBI has also made high-value Maxgain loans more expensive.
The Maxgain loan is a home loan structured as an overdraft. In this loan, the borrower is not charged any interest for any surplus that the borrower parks in a current account linked to the loan. For a Maxgain loan above Rs 1 crore, interest has been revised to 9.75% for women and 9.8% for men. In a commercial real estate maxgain loan, the interest has been revised to 9.95% for women and 10% for other borrowers.