SBI slashes home loan rates yet again

The rate war in the home loan segment has just intensified, with the State Bank of India, the country’s largest bank, slashing rates today to attract customers across income segments.

It introduced a new scheme for borrowers up to Rs 5 lakh. In this Hi-Five Loan Scheme, the bank has offered an annual rate of 8 per cent for the first five years. Thereafter, the borrower has the option to choose between a floating rate of 2.75 per cent below the State Bank Advance Rate (SBAR) and a fixed rate of 1.25 per cent below SBAR.

Meanwhile, the limit on the Easy Home Loan scheme has been enhanced from Rs 30 lakh to Rs 50 lakh. For loans up to Rs 50 lakh, the lender will charge 8 per cent in the first year and it has reduced the second- and third-year rates from 9 per cent to 8.5 per cent. From the fourth year on, the conditions are the same as that in the Hi-Five Loan scheme.
 

HOMING IN (Home loan rates of major banks and financial institutions)
Bank	Loan amount (Rs lakh)	Rate of interest
HDFC	up to 15	8.75
	15-30	9.00
	above 30	9.50
PNB	up to 20	9.25
	above 20	9.75
LIC HF	up to 30	8.75
	above 30	9.25
ICICI	up to 30	9.25
	above 30	9.75

For loans above Rs 50 lakh (Advantage Home Loan scheme), the new rates are 8 per cent (first year), 9 per cent (second and third years) and a floating rate of 1.75 per cent below SBAR or a fixed rate of 0.75 per cent below SBAR from the fourth year.

There will be no processing fees, free personal accident insurance and no levy on prepayment of loans if they are paid from the borrower’s own resources. Said P Nandakumaran, chief general manager, personal banking, SBI “We have taken the lead and expect others to be in step with us.”

Industry sources said with this cut, the bank’s rates look the most attractive among competitors. For those on the Easy Home Loan scheme, which targets the largest segment of borrowers of loans between Rs 5 lakh to Rs 50 lakh, the savings would be quite substantial.

A borrower would have paid an equated monthly instalment (EMI) of Rs 36,989 for a 20-year Rs 40 lakh loan at 9 per cent in the second and third years. At the rate of 8.5 per cent, his EMI would come down to Rs 34,712 — a monthly saving of Rs 1,277 and annual saving of Rs 15,324.

Industry experts said the new rates bring down SBI’s average yearly rate substantially. Given that the present SBAR is 11.75 per cent, the rates from the fourth year could be 9 per cent (2.75 per cent below SBAR) or even lower.

That means in the Easy Home Loan scheme, the new rate would be 8.76 per cent a year, down from 9.58 per cent a year (for a 20-year loan).

For a similar tenure and loans between Rs 15 lakh and Rs 30 lakh, HDFC’s average is 9 per cent and ICICI Bank’s is 9.25 per cent.

Canara Bank’s average rate is 9.67 per cent. The bank was the first one to offer a five-year fix rate. For the first year, it charged 8.25 per cent and 9.25 per cent in the next four years.

Competitors were non-committal. “We are not worried by SBI’s latest move because we are in a different space. Since July, we have been offering a scheme under which customers pay a fixed rate of 8.9 per cent for the first three years but can opt to shift to the floating rate at any time during that period. As far as

I know, no other institution offers customers this option,” R R Nair, Director and Chief Executive, LIC Housing Finance. A senior official from HDFC said, “ We cut rates recently. There are no plans to cut them further.”