Private lenders wary on home loan rates

Even as their PSB counterparts begin pre-festive season discounts, they say cost of funds high, still rising

It is that time of the year when home buyers expect banks to offer hefty discounts on loan rates to propel the festive season demand.

And, state-run lenders, nudged by Finance Minister P Chidambaram, have started lowering housing loan rates. Yet, the normally more aggressive private sector banks have taken a back seat to keep their margins steady, amid the rising cost of funds.

State Bank of India (SBI), the largest commercial bank in the country, had taken the lead in August, slashing interest rates on housing and other retail loans. This came a day after the Reserve Bank of India reduced the Statutory Liquidity Ratio (SLR) for banks by 100 basis points, releasing close to Rs 68,000 crore of additional liquidity into the system.

Chidambaram had urged other government-owned banks to mirror SBI's move, prompting Allahabad Bank, Central Bank of India, IDBI Bank, Indian Overseas Bank, Oriental Bank of Commerce, Punjab National Bank and Union Bank of India to cut home loan rates. Most public sector banks are now offering loans up to Rs 30 lakh at close to their base rate or minimum lending rate. They, however, clarified the discounts are part of their festive season offer and would only be available for a limited period.

While private lenders had doled out similar discounts in the past few festive seasons, they are yet to do so this year. They feel the cost of deposits is still too high. ICICI Bank, Axis Bank and the country's largest mortgage lender, Housing Development Finance Corporation, are not offering any discounts as of now.

"Margins are already thin as the cost of funds continues to rise. We are not in the pricing game. Instead, we prefer to focus on offering value-added products and services. Currently, we do not plan to offer any discount on our home loan rates," said the head of retail lending of a large private sector bank.

Bankers said state-run lenders are able to offer discounts as they have started shedding their high-cost bulk deposits. The finance ministry had earlier asked these banks to cap the proportion of their bulk deposits, including certificates of deposit, to 15 per cent by March, 2014.

"For private banks, it is not possible to reduce their lending rates as they are still taking bulk deposits. Our cost of funds, on the other hand, is declining as we are shedding these deposits," said a top official with a Mumbai-based public sector bank.

Some of the government-owned banks, including SBI, have also announced a 50-100 bps reduction in their retail term deposit rates to keep the cost of funds under control.

A few bankers with private sector lenders, however, did not rule out discount offers in the next couple of months. They will evaluate the response received by state-run lenders following the rate cut before revising their own home loan rate.

"Public sector banks have their own compulsions. I think it is still early for festive season discounts. We will see if there is any significant improvement in demand before making our offers," said a private banker here.