To stop fixed rate home loans for above 10 yrs. | |
| State Bank of India yesterday announced it was discontinuing fixed-rate home loans for above 10 years in view of "uncertainties" on the longer-term interest rate scenario. |
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| The country's largest bank also hiked interest rates on fresh home loans by 25-75 basis points, after resisting pressures for making the move. Housing Development Finance Corporation was the first major home loan provider to hike interest rates by 50 basis points across the board earlier this month. |
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| ICICI Bank followed with an identical hike in the interest rate on its home loans. The largest private sector bank, in fact, increased its prime lending rate (PLR) for corporates twice in just over a month's time. In early January, it increased its PLR by 25 basis points to 11.25 per cent and again this month by 50 basis points to 11.75 per cent. |
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| An SBI executive said the interest rate hike would not be applicable to existing floating-rate loans as the bank's benchmark prime lending rate, called State Bank advance rate, had not been changed. |
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| The bank has decided to stop offering fixed-rate home loans for over 10 years because it does not want to take interest rate risks on longer terms when interest rates are moving up. Fixed-rate loans formed about 8-9 per cent of the SBI's total home loan portfolio of Rs 30,000 crore, the executive said. |
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| The SBI said the floating rate for loans between five and 15 years will be 8.75 per cent against 8.50 per cent earlier. The rate for loans up to 5 years will be hiked to 8.5 per cent from 8.0 per cent. Interest on fixed-rate loans has been increased to 9.25 per cent from 8.5 per cent for loans up to 5 years and to 9.5 per cent from 9 per cent for loans up to 10 years. |
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| The recent interest rate increase followed a 25 basis points hike in the reverse repo rate to 5.5 per cent by the Reserve Bank of India on January 24, to contain inflationary pressures. |
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| Home loans are among the most finely priced lending products and banks are finding it difficult to resist upward pressures on interest rates. Home loans increased by 50 per cent in 2004-05. |
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