SBI matches HDFC; Cuts home loan rate by another 10 bps for new buyers

New rate 9.9%; for existing customers, it is 10%

After reducing its base rate by 15 basis points (bps), India’s largest lender, State Bank of India (SBI), has cut the interest rate for new home loans by another 10 bps, to 9.9 per cent.

So, in effect, the interest rate for new home loans will be reduced by 25 bps. For the existing ones, 15 bps is the reduction.

This brings SBI’s offering at par with the rate charged by Housing Development Finance Corporation (HDFC), which had announced a rate reduction last Friday. However, for existing customers, HDFC’s rate is still lower by 10 bps.

Banks started reducing interest rates from earlier this week, after the Reserve Bank of India (RBI) said further policy rate reduction would depend on how banks reduce lending rates. Banks had resisted reduction despite the 50 bps repo rate cut by RBI since January.

SBI said the revised rate would be applicable for all new home loans sanctioned on or after April 13. A senior SBI executive said the additional 10 bps cut was aimed at “staying competitive”. The move comes amid the RBI directive that an interest rate differential will not be allowed if customer profiles are similar.

Earlier, HDFC gave home loans at 10.10 per cent, while SBI charged 10.15 per cent. ICICI Bank is now hawking home loans between 9.9 and 10 per cent. Its earlier rates were between 10.15 and 10.25 per cent. However, home loan growth was better than the overall loan growth, which grew by 14.5 per cent year-on-year, till February. For new home loans to women, SBI is offering an extra five-basis point rebate. So, the effective rate for them will be 8.5 per cent. The revised equated monthly instalment per Rs 1 lakh for a loan tenure of 30 years will be Rs 871 against the earlier Rs 889, prior to the reduction in base rate.

An SBI executive said his bank’s home loan portfolio had grown by about 15 per cent in 2014-15. With rate reduction, SBI expects an uptick in demand and is looking to clock 18 per cent growth in 2015-16.

Its home loan book stood at Rs 1,52,905 crore (58.5 per cent of retail loans) by end of December 2014.