Home loan interest: SBI, Kotak Mahindra Bank, HDFC slash rates

 As overall credit demand remains well below targeted levels, prominent home loan players such as State Bank of India, HDFC Bank, ICICI Bank, and Kotak Mahindra Bank have dropped their rates to decadal lows, providing consumers with a plethora of options.

According to Care Ratings, banks are sitting on over Rs 6.5 lakh crore in excess liquidity as of last week, fueling the interest rate battle. Excess liquidity hurts banks' profits since they have to pay interest to depositors, which is currently as low as 2.5 percent.

Home loan growth slowed in FY21 due to the pandemic, according to RBI data, albeit the reduction actually began in March 2020. Home loan growth dropped from 17.5 percent in January 2020 to 7.7 percent in January 2021.

Housing loans are safe bets for banks in the current environment because the risk of default is low, with a gross nonperforming asset (NPA) of just 0.67 percent for SBI, which leads the market, and under 1% for HDFC.

Banks are anticipating that the fledgling economic rebound will lead to an increase in home purchases, which have been sluggish since March. With corporate demand still a long way off and NPAs at an all-time low, the primary rationale for banks to promote residential loans is their risk-free nature.

Housing loans, unlike personal loans, require collateral. In the event of a default, banks can take the asset and sell it at auction.

As of November 2020, live home loans accounted for more than half of all personal loans for banks, with a total value of Rs 14.17 lakh crore.

There are other benefits for consumers as well, such as lower property prices as a result of the epidemic and the consequent reduction in stamp duty by many states after the pandemic severely impacted the real estate market.

However, lenders continue to be selective, pricing loans differently based on the risk profile and creditworthiness of borrowers. Only borrowers with a credit score of 800 or more are eligible for the new SBI and Kotak Mahindra rates of 6.7 percent and 6.65 percent, respectively. In addition, with the exception of HDFC, the new rates are only valid until March 31.

The rate war began on March 1 when market leader SBI, which has a live home loan book of over Rs 5 lakh crore and a market share of 34% of the Rs 14.17 lakh crore market, waived the processing charge and slashed rates by 10 basis points to 6.7 percent.

For loans up to Rs 75 lakh and 6.75 lakh and above, SBI is offering 6.7 percent with no processing fee until March 31. According to Saloni Narayan, SBI's deputy managing director for retail operations, "it is also offering an additional 5 bps reduced rate to women if applied using its mobile app Yono."

As the market leader in home lending, SBI takes responsibility for improving consumer sentiment.

With the current products, the consumer's affordability improves dramatically because the EMI is reduced,? she explained.

On the same day, Kotak Mahindra Bank did the same, lowering its rate by ten basis points to 6.65 percent, the lowest in the mortgage market. It had previously recorded the lowest rate in many months, at 6.75 percent.

Two days later, HDFC, the pureplay mortgage market leader with over 19% market share (according to an Emkay Global analysis), joined the race and slashed rates for new and current clients by 5 basis points to 6.75 percent for an indefinite period. However, it later decreased the charges by further 5 basis points till March 31, with a flat processing fee of Rs 3,000.

SBI's home loan portfolio topped the Rs 5 lakh crore barrier last month, increasing its market share to 34%, according to chairman Dinesh Khara. He attributed this to a phenomenal growth in the house loan market in December 2020, when the bank experienced its biggest sourcing, sanctions, disbursements, and growth ever.

He added that despite the significant setback to the real estate sector caused by the pandemic, SBI's housing business has seen unprecedented growth so far this year.

ICICI Bank dropped its home loan rates to 6.7 percent on March 5 for loans up to Rs 75 lakh, and 6.75 percent for loans over that level, following the lead of leading home financiers. The new rate is the lowest in ten years, according to the private sector lender, and it will be available until March 31.

"We've seen a revival in demand from people looking to buy properties in the last several months," said Ravi Narayanan, ICICI Bank's head of secured assets.

According to an Emkay Global research, ICICI Bank became the first private sector lender to cross the Rs 2-lakh-crore mark in home loan portfolio in November 2020, giving it a 13 percent market share.

Conclusion

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