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SBI Puts an End to its Teaser Home Loan

by Paul Joseph April 27, 2011 Uncategorized

State  Bank of India (SBI) will put to an end to its puzzled home loan schemes by the end of April 2011. The interest rates offered on its home loans will now be recalled by floating interest rate schemes, which are comparable with those offered by  other commercial banks and housing finance companies. All loans from May 1 will  draw an interest rate of 9.5-10.25 per cent, depending on the loan amount.  Loans up to Rs 30 lakh will be available at 9.5 per cent (one percentage point  above their base rate). Loans in the Rs 30-75 lakh range will be charged 9.75  per cent (125 basis points above the base rate). And, those above Rs 75 lakh  will be charged 10.25 per cent (175 basis points above the base rate). Though,  these rates would move in line with the changes in the bank’s base rate that is  reviewed every quarter. Earlier,  the RBI had asked banks to stop giving teaser loan rates,  since it believed such loans would blow the asset quality of the bank’s home  loan portfolio. Puzzled loans offer advances at a comparatively lower rate of  interest for the first few years, after which rates were re-set at higher  rates. SBI is the last one to discontinue such special loans. Under its SBI  Easy Home Loan and SBI Advantage Home Loan products, one could get loans for  8-8.75 per cent in the first three years. After the third year, the rates would  get reset at the current floating rate structure. At 8.75 per cent, a  20-year-old loan on Rs 30 lakh would come to Rs 884 a lakh. At 9.5 per cent,  you would now be paying Rs 932 a lakh. Those who already have SBI’s puzzled home loans  and are still in the initial three years, the old rates remain applicable. The  new rates will only apply to new applicants. Among the housing finance  companies, LIC Housing Finance is still offering a fixed interest rate of 9.9-10 percent for the first five years and, thereafter, the existing rates will apply. A quick calculation on apnaloan.com showed that the average  rate for a 20-year period still works out in SBI’s favor. The average rate for  SBI was 9.5 percent, while that for LIC Housing was 10.5 percent for the same period.

Tagged as: 20-year-period, after-the-third, bank, base, blow-the-asset, housing, housing-finance, india, loans, reviewed-every, sbi

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SBI’s Much Debated Teaser Home Loan Rates to Continue till May

by Paul Joseph March 28, 2011 Uncategorized

State Bank of India’s (SBI) much-debated teaser home loan rates may see a hike in rates by May, when the next monetary policy review would be announced by the Reserve Bank of India (RBI). But unless there is a hike in rates during the review, SBI will retain the teaser home loan rates, said a senior official with the bank. The RBI had in the past expressed its reservation on the teaser rates offered by SBI, on the grounds that such aggressive rates would push up housing prices. The teaser home loan rates, or special rates as the bank’s chairman OP Bhatt prefers calling it, was a mixture of fixed and floating interest rates where the customers were charged 8.75 per cent in the first year, 9.50 per cent in the second and third years and the prevailing floating rates from the fourth year onwards. “The recent economic survey has also come in support of the rates as they helped in making housing available to a large number of people. So we don’t see any reason to discontinue this scheme. However the rates may be stepped up whenever the base rate increases,” the official told Financial Chronicle. Since RBI is faced with the huge challenge of taming inflation, the movement of inflation will determine whether the base rates will see a hike during the next monetary policy review, scheduled for May 3. The teaser rates by SBI have been seeing a steady rise with every base rate hike. It started with 8 per cent in the first year and 9 per cent in the second and third year, when the scheme was originally announced by SBI last year. Private banks like ICICI Bank and HDFC too announced similar schemes but could not continue with it after a certain period with the rising interest rates. SBI however continued with the scheme though it has effected a 50-75 basis point hike since then. However, when compared to fixed rates of 11.50 to16 per cent and floating rates of 9.75 to 10.50 per cent offered by most banks, the teaser rates are certainly more attractive.

Tagged as: bank, banking and finance, base, financial, from-the-fourth, home-loans, india, property prices, real estate, real estate developers, real estate india, reserve, scheme, teaser

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Consider taking a home loan now

by Paul Joseph September 9, 2010 Uncategorized

Makes sense to opt for fixed-cum-floating one, as rates are on an upward trend. If you have been hesitant about a home loan, now is the time to consider one. Those attractive interest rates on home loans that teaser or dual rate schemes offer are here to stay for some more time. This means lower equated monthly instalments (EMIs) outgoings. Improved customer response has resulted in banks extending their teaser rates. On Tuesday, HDFC extended its scheme to match State Bank of India’s (SBI) and ICICI Bank’s offer that ends on September 30. Other housing finance companies offering such rates are LIC Housing Finance and Indiabulls. Among banks, Punjab National Bank (PNB) is also offering such a scheme to its borrowers. Opting for teaser rates Experts say customers should opt for the current fixed-cum-floating rate loans, since interest rates will only go up from here. “Teaser rate schemes come with a comfort that the interest rate cycle will not disturb the monthly outgo for a minimum period of a year and a half. The interest rates are on an upward trend and there is no clarity when the cycle will change,” said Harsh Roongta, CEO, Apnapaise. Suresh Sadagopan, a certified financial planner, says teaser loans make sense for borrowers with the capacity to prepay every year and who want to finish their loan earlier than the specified tenure. This means if you get an annual bonus or commission that you can pay towards your home loan, you can look at these hybrid products. But, they also add, the borrower should first understand the implication on finances once the lender switches the loan to a floating rate. “The change can impact your pocket, as rates can go from 9-9.5 per cent to, say, 11-11.5 per cent,” said Arnav Pandya, certified financial planner. This is why the Reserve Bank of India has regularly expressed concern over these schemes. The banking regulator feels these products can take a toll on borrowers’ finances once the fixed rate period gets over and customers need to pay higher prevailing floating rates. Current Offers According to the revised rates, HDFC will charge an interest rate of 8.5 per cent for the next six months, up to March 31, 2011. For another year (March 31, 2012), the customer will pay a fixed rate of 9.5 per cent. Thereafter, the rates will be 4.75 per cent lower than the prime lending rate, currently at 14.25 per cent. These rates are applicable irrespective of the loan amount. For loans up to Rs 50 lakh, SBI charges eight per cent in the first year after disbursement. In the second and third year, the interest rate will be nine per cent. Thereafter, the borrower has a choice to either opt for a floating or fixed rate. The floating rate will be 1.75 per cent above the base rate, currently at 7.5 per cent. And, a fixed rate will be 3.5 per cent above the base rate. The interest rate structure for loans above Rs 50 lakh is the same. The only difference is that once the fixed rate tenure is over, the spreads are higher. For a floating rate, the customer will need to pay 2.25 per cent over the base rate and if he or she opts for a fixed rate, the spread will be 3.5 per cent above the base rate. ICICI Bank offers a fixed rate of 8.25 per cent until March 31, 2011 and 9.25 per cent fixed till March 31, 2012. Thereafter, for loans up to Rs 30 lakh, the rates will be 1.5 per cent above the base rate and for loans above Rs 30 lakh, the interest would be 1.75 per cent above the base rate. Currently, ICICI Bank’s base rate is 7.5 per cent. Comparison Among the six schemes, experts said offers from SBI and PNB work out to be cheaper and the tenure for a fixed rate is higher, too. Both banks offer fixed rates for the initial three years of the loan. Schemes from other lenders work out to be fixed only for a year and a half. The longer duration of loan gives more safety to borrowers from a volatile interest rate environment. If you look at the average interest rate to be paid for 20 years for loans below Rs 30 lakh, these work out to be 8.79 per cent for LIC Housing Finance, 8.98 per cent for PNB, 9.03 per cent for SBI, 9.12 per cent for Indiabulls Financial Services and ICICI, and 9.37 per cent for HDFC. The average interest rates for loans above Rs 50 lakh for a 20-year loan work out to be the same for all lenders except PNB, which is 9.30 per cent. “Banks also fare better for now, as they have shifted to the base rate system for benchmarking their loans. This system is more transparent compared to the prime lending rate that housing finance companies follow,” said Roongta. Source: http://www.business-standard.com/india/news/consider-takinghome-loan-now/407460/ Filed under: Home loans Tagged: HDFC , Home loans , Icici Bank , LIC Housing Finance and Indiabulls , PNB , State Bank of India’s (SBI)

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Rise in base rate won’t affect your repayments

by Paul Joseph August 24, 2010 Uncategorized

MUMBAI: The Reserve Bank of India, has said a bank will have to honour a fixed rate contract, even if interest rates move up in future. The clarification has removed doubts that some banks had over introduction of fixed rate home loans. Customers of some banks feared that if the lender’s base rate rose above the contracted fixed rate, the bank might increase the loan rate citing RBI guidelines even though the loan was termed as ‘fixed rate’. The RBI has said no loan can be advanced below the new benchmark rate. Banks like Punjab National Bank, State Bank of India and ICICI Bank are offering fixed rate home loans, but customers were worried that they may be charged a higher rate of interest rate if the base rate goes up since no bank is allowed to lend below the base rate. However, RBI has said at the time of contracting a fix rate loan if the lending rate (under the special scheme) is higher than the base rate, banks do not need to charge higher rate even if the lenders raise their base rate in future. For instance, PNB has decided to offer a fixed rate loan of 8.5% on home loan for the first three years. In case PNB decides to raise its base rate, which is now at 8-9% after a year, RBI has said they cannot charge customers (who have opted for 8.5% three-year fixed rate scheme) an interest rate more than 8.5% in the first three years. SBI scheme offers 8% for the first year and 9% for the second and third year. While SBI’s scheme is up to September, PNB’s scheme is till December 10. However, RBI has also told banks that if they hike or lower base rate, that increase or cut in rates will have to be passed on to the new customers under the special home loan scheme. Therefore, if PNB raises its base rate, to say 9% in October, those special schemes cannot continue at 8.5%, however, the customer who have already availed loan at a fix rate of 8.5% before October, need not pay more. Sources from the industry say PNB had asked for a clarification from RBI on this issue since they recently launched the festive offer and were keen to offer a fix rate scheme. The PNB fix rate offer is on loans up to Rs 50 lakh and from the fourth year onwards, the bank will charge home loan rate that is prevailing at that point of time for all its customers. Source:http://economictimes.indiatimes.com/personal-finance/loan-centre/home-loans/home-loans-news/Rise-in-base-rate-wont-affect-your-repayments/articleshow/6423649.cms Filed under: Home loans , Mumbai Tagged: Home loans , Icici Bank , Mumbai , PNB , RBI , SBI

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SBI extends home loan schemes

by Paul Joseph July 1, 2010

State Bank of India (SBI) has decided to extend its flagship home loan schemes: SBI Advantage Home Loans and SBI Easy Home Loans, and car loan schemes: SBI Advantage Car Loan and SBI Ezee Car Loan, and leave their terms unchanged following the transition to the Base Rate system with effect from July 1. “The rates will be valid till September 30, unless the Base Rate is revised in the meantime,” SBI said in a release here. For home loans, the rate is 8 per cent per annum fixed for the first year and 9 per cent fixed for the second and third years irrespective of the loan amount. From the fourth year onwards, the rate is linked to the Base Rate and the effective rate is 9.25 per cent for loans up to Rs. 50 lakh and 9.75 per cent for loans above Rs. 50 lakh at present, it said. For loans for new cars, the interest rate is 8 per cent fixed for the first year, 10 per cent fixed for the second and third years. Thereafter, the rates are linked to the Base Rate and the effective rate at present is 11.25 per cent for the fourth and fifth years and 11.5 per cent for sixth and seventh years for Ezee Car Loans with limits up to Rs. 5 lakh. For loans above Rs. 5 lakh under Advantage Car Loans, the floating rate is 25 basis points less than that for Ezee Car Loans. Meanwhile LIC Housing Finance Ltd (LICHFL) announced three lending products on Wednesday. These are: Floating rate: For home loan borrowers preferring floating rates ab-initio the special offer rates for new customers for loans up to Rs. 1.50 crore will be 8.75 per cent. Earlier, the special offer rates for loans above Rs. 75 lakh and up to Rs. 1.50 crore were priced at 9.75 per cent. New Fix-O-Floaty: For home loan borrowers opting for short-term fixed rate, the new Fix-O-Floaty offers loans at a competitive rate of 8.90 per cent fixed up to March 31, 2012, for loans up to Rs. 1.50 crore and thereafter on floating basis. The earlier rate of interest for loans above Rs. 75 lakh and up to Rs. 1.50 crore was 9.90 per cent. Advantage 5: LICHFL has brought out a product called ‘Advantage 5′ where under the lending rates are fixed at 9.25 per cent for five years and thereafter on floating basis. Source : http://www.thehindu.com/business/companies/article493819.ece Filed under: Home loans Tagged: Home loans , SBI

Tagged as: base, fourth, home-loans, housing-finance, lending, loans, sbi

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Teaser rates on home loans to go as base rate debuts

by Paul Joseph June 28, 2010

India’s top lenders who have offered teaser rates on mortgages through special schemes to boost off take of loans will withdraw such schemes on Wednesday, as banks move to a new system of pricing loan s from July 1. The special loan schemes launched by mortgage lenders — HDFC, ICICI Bank and State Bank of India last year, featuring lower rates at fixed rates for the first couple of years — will end on June 30. According to bank officials, none of these schemes are likely to be extended. India’s largest bank — SBI’s and ICICI Bank’s pricing of home loans will shift to the new benchmark — the base rate from July 1. SBI, which was the first to kick off this special scheme or teaser rates, is offering home loans at 8% for the first year, 9% for the next two years and linked to market rates in the subsequent years. HDFC, which was then forced to follow suit, offers a fixed rate loan of 8.25 % up to March 2011, 9% for 2012-13 and the prevailing rate thereafter. ICICI Bank’s scheme offers a fixed rate of 8.25% during the first year, 9% in the second year with the loan then being shifted to a floating rate linked to the prevailing benchmark. SBI’s aggressive move succeeded with the bank sanctioning an average Rs 2,000 crore of home loans every month. The bank then extended the scheme, as did HDFC, the leader in the mortgage lending segment. However, with the shift to the new benchmark, there is uncertainty relating to how banks would price their home loans. Banks have indicated that their base rates would be in the range of 8-10%, but there is no clarity now on the spread at which they would lend. So far, banks could structure special home loan schemes to attract new customers as they were allowed to lend below the prime lending rate. Under the new system of pricing loans, which comes into force from July, no bank can lend below the base rate. Old borrowers will have the option to shift to the base rate as the new benchmark. But some bankers say they may have to continue announcing the prime lending rate as a benchmark simultaneously since they have already contracted with borrowers to peg interest rates to the PLR. The base rate will favour borrowers in a falling interest rate regime as lenders would have to revise the base rate to reduce lending rates. RBI has made it clear to banks that any changes in the base rate will have to be applicable to existing customers as well. However, what needs to be borne in mind is that the central bank has only told banks to adopt the base rate system, which is not applicable to housing finance companies and NBFCs. In the last interest rate cycle, many old customers complained that they did not receive the full benefit of lower rates on their homes loans as banks offered lower rates to new customers while old customers continued to pay higher rate. Banking analysts say if the base rate is in the range of 8-10%, home loans would have to be priced higher than this. Further, home loan rates are expected to go up as interest rates are now headed northwards. Many banks have held back a review of their interest rates until the adoption of the new benchmark. RBI executive director Deepak Mohanty said the base rate system will not increase the effective cost of borrowing as projected by the corporate lobby and that it was aimed at bringing more transparency in the lending rates. Bankers are of the view that interest rates on home loans will continue to be competitive since it is a secured loan.

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SBI Eyes Big Surge in Home Loans

by Paul Joseph June 24, 2010

State Bank of India (SBI), India’s largest lender, is neck and neck with mortgage leader and pioneer HDFC in terms of home loans outstanding, according to data from Icra, the rating agency. The bank is aiming to increase its home loan portfolio (opening balance of loans plus loans disbursed less repaid in a year) by 31% this year, the same as last fiscal, but the pie will be bigger because of a larger base or compounding. “We have a client base of more than 15 lakh individuals and we are aiming to add another 4 lakh this year,” said a top bank official. “We added about 2.92 lakh last year,” the official said, requesting anonymity. The person did not say if more teaser-rate type plans are on the anvil.Such loans were primarily behind the Rs 17,000 crore burgeoning of the bank’s portfolio last fiscal. Last fiscal, HDFC clocked a 15% in outstanding loans (new disbursals less repayments) on a 27% growth in disbursements. HDFC’s outstanding loans have grown by 30% only in fiscal 2008, while it has remained around 15-16% in the next two years. The pace of sanctions continues to be frenetic. “We have sanctioned loans worth Rs 3,650 crore spread across 31,400 accounts in April and May this year,” said the official. That, annualised, comes to more than Rs 22,000 crore —exactly the amount of outstanding the bank hopes to have for the year. Icra said SBI and HDFC enjoy same market share of 17% as of March 2010 in the home loans segment. Along with ICICI Bank (including ICICI Home Finance), and LIC Housing Finance, they dominate the domestic mortgage market, accounting for 55% ofhousing credit in India as of March 31, 2010. Icra has computed the market size and market share using annual disclosures of various players and data from RBI “… (market size and market share) is therefore dependent on correct classification of housing loans in the original reporting,” said Icra in a note explaining its computation. The special home loan scheme launched by SBI last year gave a boost to the loan growth in this segment. The scheme offers low fixed interest rates for initial years and floating rates thereafter. It has been revised several times but the fixed and floating rate combination has been maintained throughout. With the base rate coming in from next month, certain revisions are again expected in the scheme. “We will be able to take a call on that only when there is clarity on the base rate that is chosen for the bank,” said the official indicating that the decision will be taken only a few days before base rate sets in. It is expected that the interest rates on the scheme will be revised as per the base rate while the fixed and floating combination will be retained.

Tagged as: base, finance, home-loans, housing, housing-finance, india, official, real estate, real estate developers, real estate india, year

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Punjab National Bank to fix base rate at 8-8.5%

by Paul Joseph June 21, 2010

Punjab National Bank (PNB) will fix its base rate at 8-8.5 per cent, according to its chairman and managing director, K R Kamath. He told newspersons that the base rate system (which would replace the existing prime lending rate from July 1) would benefit small and medium enterprises. “The base rate should bring in some sort of equilibrium in lending rates. Customers who are getting credit at sub-PLR rates will have to move up. This benefit could be passed on to others,” he said. On the likely impact on retail loans, Kamath said clarity would emerge once the base rates are operational. Source : http://www.realtyplusmag.com/rpnewsletter/fullstory.asp?news_id=9082&cat_id=2 Filed under: Home loans Tagged: Home loans , Punjab National Bank

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Base rate to help old home loan borrowers

by Paul Joseph June 8, 2010

With the base rate era setting in from 1st July 2010, the old home loan borrowers might receive a chance to negotiate for a lower interest rate as it is believed that various banks would be re fixing their lending rates once the base rate sets in. RBI has already stated that the current customers should be offered an alternative between continuing with their old home loan rates or move to new rates decided by the base rate system. Numerous public and private sector banks would be repricing their retail loans 1-2% points higher than the base rate so as to remain competitive. An official of State Bank of India said, “The new customer may enjoy rates in the region of 9-10%, while existing customer will still be paying 1-2% below the existing prime lending rate which for some banks is as high as 13.75%,”. As per the new system of lending, the banks would not keep the base rate high for the fear of losing clients in the competitive atmosphere. The SBI official said, “In order to be competitive most banks will keep the base rates in the range of around 8-9%. Customers who are in the mid-term of the loan period and are paying interest in double digits will have an advantage”. But banks have not clarified if they would be offering the benefit to the old customers. An official of a private bank said, “It will depend on the customer profile as well. Generally banks tend to hold on their retail customers even if they have to pass on a 50 basis points (0.5%) rebate”.

Tagged as: base, customer, home-loans, india, lending, real estate, real estate india, retail

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Banks ask RBI to Clarify Pricing of Old Home Loans

by Paul Joseph February 24, 2010

Banks have sought clarity from RBI on pricing of old home loans once the new ‘base rate’ regime sets in. Loan agreements, stretching for 15-20 years, have no provision for replacing the prime lending rate (or PLR) — the anchor interest rate to which the floating rates are linked. However, RBI has told banks to start benchmarking loans to a ‘base rate’ instead of the PLR from April 2010. The base rate is to be calculated on a cost-based formula and would be lower than the PLR, while banks are free to charge a risk spread over the base rate they cannot lend below the base rate. Significantly, RBI has directed banks that at the time of loan renewals or resetting interest charges, banks should take the ‘base rate’ as the anchor rate. Since home loan agreements, like other loan deeds, are legal documents, bankers fear that many retail borrowers will resist a switchover from PLR to ‘base rate’ and signing on a new agreement. Bankers will also have to grapple with the fact there is no renewal date in case of home loans and existing loan agreements are for the entire tenure of the loan. Secondly, since the base rate is a floor rate, there is a possibility that interest rates on some home loans may have to be hiked if the base rate of the bank is higher than existing loan rates. At least, three senior bankers told ET that there is ambiguity on the matter and they are seeking clarity from RBI. “The moot point is the floating rate home loan do not have renewal clause, making it difficult for banks to link these loans to base rate. Alternatively, banks can give customers an option to shift to base rate. But, if customers have availed of loan at rate lower than the base rate, they may resist shifting to base rate. Banks also cannot force base rate on them as it’s a legal document (loan agreement).” The other alternative would be to maintain two parallel rates —PLR and base rate till the maturity of all old loans in their book. However, bankers feel this move may not go down too well with RBI. The central bank aims to do away with discriminatory prices for old and new customers. As of now, all old home loan customers are paying higher rate interest compared to new home loan borrowers, even when both of them have taken floating rate loans. Banks say they have priced new loans at cheaper rate because their incremental cost of funds came down. But RBI has urged that reduction in incremental cost also results in reduction in overall cost of funds and thus the benefit of lower rate should be passed on to old borrowers as well. Thus if BPLR continues to be anchor rate for old home loans, it may negate the propose of introducing base rate. “In case of short-term loans given to corporates, individuals and small businessmen, banks may have to keep alive its BPLR. But whether it can be kept active for home loan which has a 15-year maturity is yet not clear,” said a senior banker. Also, one of the key reasons for RBI to introduce base rate was to improve the transmission of police rate to the credit market. Very often, RBI has observed that the reduction in policy rates has not translated in banks lowering lending rate by the same quantum. In the policy document of January 2009, RBI governor, D Subbarao pointed out: “While changes in RBI’s policy rates were quickly transmitted to the money and government securities markets, transmission to the credit market was slower. Evidently, the transmission is still in progress.” Between October 2008 and December 2009, RBI substantially reduced policy rates — the repo rate by 425 basis points and the reverse-repo rate by 275 bps. CRR was also reduced by 400 basis points of NDTL. But reduction in the range of BPLRs was 125-275 basis points by public sector banks, followed by 100-125 basis points by private banks and 125 basis points by five major foreign banks.

Tagged as: base, book, credit, loan, money, rbi., real estate, real estate india

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