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Extend Discounted Home Loans, But Cut Rates on FDs
State Bank of India and other public sector lenders have extended their special schemes offering home loans at discounted rates even as they slashed returns on fixed deposits. Private sector banks have, however, raised interest rates on auto loans, ending their festive offers.
SBI, which controls a fifth of bank loans and deposits, has extended its special 8% home loan scheme until March 31, 2010. Among others lenders, Bank of India and Punjab National Bank have decided to extend their special home loan schemes till December 31, while Union Bank of India has decided to extend it till January 15. Officials from these banks told ET that the objective was to grab market share in mortgages.
Bank of Baroda has, however, discontinued its special home loan scheme from October 31. “We feel the interest rate cycle is set to change,” said an official explaining the bank’s interest rate view.
SBI officials said a huge response to the special scheme and slack demand for corporate loans had prompted the bank to extend the scheme. However, the processing fee on loans, which was waived for three months, has been reintroduced.
Unlike mortgages, where interest rates on most loans move up along with market rates, auto loans are offered on fixed rates. Private banks like HDFC Bank and Kotak Mahindra, which dominate the car loan business after SBI, have therefore taken pre-emptive action against an anticipated rise in interest rates. HDFC Bank has rolled back its festive offer discounts of 50-75 basis points from November 1.
“There is good demand but interest rates are likely to move up. As such, there is no point in continuing with the discounts,” said Ashok Khanna, EVP, HDFC Bank. Interest rates on auto loans of the bank now range 10.25-11.5%. HDFC Bank is the second largest in auto loans after SBI and disburses around Rs 1,000 crore every month. Kotak Mahindra, another large player, has increased interest rates by 25 bps from October 25 and will raise them by another 25 bps from November 9. “Our two-month festive season offer saw strong volumes. The rates have to reflect the reality on the lending side,” said Sumit Bali, CEO, Kotak Mahindra Prime.
Meanwhile, SBI and Punjab National Bank have decided to lower interest rates on deposits by 25-50 basis points with effect from November 9. As per the revised rates, SBI will offer marginally lower rates on deposits as compared to its rival PNB. For 1-2 years, SBI will offer 6% while PNB will offer 6.5%. For 2-5 years, SBI will offer 6.5%. PNB is offering 6.75% for 2-3 years and 7% for 3-5 years.
SBI is discouraging deposits growth by lowering rates as it faces a huge liquidity overhang.
Courtesy:- ET dt:- 07-11-09
