SBI Makes Home Loan Cheapest On Market; EMIs Further Reduced 

Mumbai: State Bank of India (SBI) has cut the interest rates on home loans to 9.1 percent - making it the cheapest available on the market. This additional cut in interest comes as part of festive offers and closely after of a general interest rate reduction last week when the bank reduced its benchmark rates by 15 basis points (bps, 100bps = 1 percentage point).

As part of the festival scheme, home loans for women or loans with women as co-borrowers will be available for 20bps above the benchmark rate, which translates into 9.1 percent. For all other borrowers, home loans will be available at 9.15 percent. The festival rates will be available for loans sanctioned in November and December 2016 and where disbursement is taking place in a month. In addition to rate reduction, the bank has waived off all processing fees.

The rate cut will bring down the EMI on a Rs 50-lakh loan by Rs 542 per month. Since March, the EMI has come down by over Rs 1,500. With this reduction, SBI’s cheapest home loans are now 20bps lower than ICICI Bank and HDFC’s cheapest home loan rate of 9.3 percent.

SBI's aggressive cut in home loan rates comes at a time when the banking sector is seeing an extremely sluggish growth in loans. The corporate loan books of most banks have shrunk as companies are shifting to the bond market. Despite negative growth in corporate loans, overall bank credit has grown by 1.6 percent in FY17 (as of mid-October) due to home loans which are growing at 18 percent. To push this fastest growing segment in the industry, SBI is aiming to increase its loan growth by grabbing market share from other lenders by offering the lo wer rates on takeover of loans.

The latest round of rate cut will be available only for new borrowers as the bank has done this by revising the spread over the benchmark. SBI's benchmark rate is the one-year Marginal Cost of Lending Rate (MCLR), which has been effective from April 2016. Earlier, loans were priced in relation to the older benchmark - the base rate. The MCLR is revised every month for new borrowers. But once a customer avails of a loan, he is locked into the MCLR for a year.

The lower home loan rates reduce SBI's margins, but they help the bank in deploying resources which are piling up as bank deposits are growing at a faster pace compared to its loans.