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Banks Planning to Withdraw Special Home Loan Schemes
Source: Indian Realty News Nov 02, 2009
If you are looking to finance the purchase of your dream house with a cheap bank loan, time is running out, with large public sector banks such as State Bank of India (SBI) and Punjab National Bank (PNB) planning to withdraw the special schemes that offer rates as low as 8% for the initial years. With the Reserve Bank of India (RBI) sending out hawkish signals in its second-quarter review, these banks may have to raise their home loan rates by January to align them with the expected hike in key policy rates. The special schemes offered by public sector banks have resulted in the cost of home loans crashing to the lowest levels in five years.

"Seeing the hawkish tone in RBI's quarterly monetary policy review, the bank board thinks it may not be possible to continue with these schemes after the end of the current calendar year," said a senior official with PNB, the country's second-largest public sector lender, requesting anonymity. While the special offers will be withdrawn from the end of the current calendar year, most banks are extending the festival offers such as zero processing fee till that time. PNB chairman and managing director KR Kamath confirmed that the discounted rates on housing loans would be extended till December-end.

Currently, various banks are offering teaser rates for the first few years on home loans. Development Credit Bank is offering 7.95% rate for the first year on their home loans. SBI, Dena Bank and Canara Bank are currently offering 8% rate for the first few years. After the offer period, such loans will be converted into floating rate loans. Some public sector banks (PSBs) have already informed the finance ministry that with RBI looking at reversing the expansionary credit policy, they will not be in a position to continue with the offers on retail loans. The government is keen that the soft interest rate regime continues till the time there is more confidence in the economic recovery.

The central bank has hiked its projection for inflation for the end of the current fiscal year to 6.5% from 5%. There has also been suggestions of an asset bubble in the RBI governor's policy speech. The consensus among various forecasts is that there will be a 50-100 bps hike in key rates within the next six months. Private sector banks, which were forced to offer lower rates after the announcement of special schemes by their state-owned rivals, are likely to hike rates once the PSBs withdraw such schemes. Considering the fact that floating rate loans comprise a large part of the housing loan segment, any increase in rates will affect a large number of existing loans as well.

Analysts expect HDFC, the largest player in housing loan segment, to marginally increase its lending rates. The current floating rate offered by HDFC are 8.75% for loans up to Rs 15 lakh, 9% for loans between Rs 15 lakh and Rs 50 lakh and 9.5% for loans beyond Rs 50 lakh. Several PSBs are expected to take a call on interest rates by the year-end. Oriental Bank of Commerce CMD TY Prabhu said while no upward pressure on interest rate is expected in the current quarter, the bank will have to take a call towards the end of the fiscal.

"The credit policy is hinting at tightening of the interest rate regime in the next quarter. We are taking measures to bring down our cost of funds. The bank will take a call on whether to continue the schemes by the end of current fiscal. We will also be looking for further signals from the central bank," said an SBI official who asked not to be named. While the fineprint of the quarterly review makes it clear that a reversal of the expansionary monetary policy is imminent, economists and bankers are divided on when the hike in key policy rates will happen. Lending rules have been tightened and a few fire-fighting measures taken during October last year, such as lower provisioning for loans to commercial real estate, were withdrawn in the current review.

Tag: Real Estate India, India Properties, Home Loans
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