Tag: interest rate

How a small change in date can impact interest income

Personal Finance

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If you are grappling with low interest rates on fixed income products, you may want to do every little bit to enhance your interest income. For that, it is important to understand how interest income is calculated.

The date on which deposits and withdrawals are made in a month can have an impact on the interest income you earn. Here we talk about the interest calculation for a few fixed income instruments – Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY), Post Office Savings Account (POSA) and Employees’ Provident Fund (EPF).

Post Office Schemes

PPF and SSY are two long-term saving products from the Post Office offering attractive interest rates today.

Both the accounts require minimum amount to be deposited every financial year (₹500 for PPF and ₹250 for SSY) to keep them active.

Under these accounts, the interest amount gets credited at the end of the financial year and compounding of interest happens annually. However, the interest is calculated for each calendar month on the lowest balance in an account between the close of the fifth day and the end of the month.

Say, the balance in your PPF/SSY account as on July 2021 end is ₹2 lakh and you plan to deposit ₹10,000 in August. If the deposit is made on August 6, the interest for the month of August will be calculated on ₹2 lakh only. The deposit amount of ₹10,000 will be considered for interest calculation only from the month of September 2021. If you slightly tweak the deposit date to some time before August 5, you can earn a slightly higher interest income on PPF/SSY. This may translate to a reasonably good amount over time due to the compounding effect.

The Post Office Savings Account (POSA) too comes with similar conditions. The interest, here too, is credited at the end of each financial year, but the lowest balance between the tenth and the last day of the month is considered.

Rules for POSA also state that on withdrawal of the entire balance interest on the corpus will be calculated up to the last day of the month preceding the month in which the account is closed. Thus, one can plan the withdrawals from POSA at the beginning of a month as you would have maximised the interest earnings at the end of the previous month.

Employees’ Provident Fund

If you are a salaried , both the employee and the employer together contribute 24 per cent of the basic salary plus dearness allowance on a monthly basis towards EPF.

On all the contributions made, interest is calculated from the first day of the month (succeeding the month of credit) to the end of that fiscal year.

For example, if, say, the EPF contribution for April 2021 is made by your employer to the EPFO towards the end of the April itself, then this contribution will earn interest for eleven months in the fiscal FY22 (May 2021 to March 2022). But say, the employer deposits the amount in the beginning of May 2021, then interest will be calculated only for ten months, that is, from June 2021 to March 2022.

Though credits to the PF account are not in your control, understand that your employer transferring the monthly PF contribution at the end of that relevant month is beneficial over transfer at the beginning of the next month.

On the other hand, in case of withdrawals, interest is calculated on the withdrawn amount up to the last day of the month preceding the month of withdrawal.

On maturity

You can consider continuing your investments in fixed-income products such as PPF/SSY and EPF account even after the contributions come to an end. This is because the interest rates offered by EPF (8.5 per cent for FY20), PPF (7.1 per cent now) and SSY (7.6 per cent now) have so far been attractive compared to other products considering the risk-return metrics.

When the subscriber retires after 55, interest will continue to be credited to the PF account until three years from the time fresh contribution to the account are stopped. Even when the EPF account becomes dormant (with no fresh contributions) before retirement age of 55, the account continues to be operative and interest will be paid until the subscriber turns 58, in most cases. In case of PPF/SSY, the account holder may retain his account after the minimum contributory period of 15 years, without making any further deposits upto 21 years from account opening in case of SSY or any period in blocks of five year in case of PPF and the balance in the account will continue to earn interest at the rate applicable to the scheme.

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Sundaram Finance to revise interest rates on deposits, BFSI News, ET BFSI

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Chennai, Aug 6

K Surendran BJP state president (File photo)

Non-banking finance company Sundaram Finance Ltd has announced a revision in interest rates on its deposits with effect from August 8, the company said on Friday. According to a company press release, the interest rate on fresh deposits and renewals stand revised to 5.50 per cent per annum as against 5.75 per cent earlier, for deposits with a tenure of 12 months

Interest rates have been revised to 5.65 per cent per annum as compared to the earlier 6 per cent, for deposits with a tenure upto 24 months.

For deposits upto 36 months, the interest rates have been revised to 5.80 per cent as against 6.25 per cent earlier, a company statement said.

For senior citizens, the interest rate on deposits have been revised to 6 per cent per annum as compared to 6.25 per cent for deposits of upto 12 months, 6.15 per cent per annum for deposits upto 24 months as compared to the earlier 6.50 per cent.

For deposits upto 36 months, the interest rates have been revised to 6.30 per cent as compared to 6.75 per cent earlier.

As on March 31, 2021, Sundaram Finance said its deposit base stood at Rs 4,021 crore.



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RBI holds repo rate; deposit rates may still go up, here’s what depositors should do, BFSI News, ET BFSI

Banking & Finance

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Fixed deposit (FD) investors who were hoping for the Reserve Bank of India (RBI) to hike key rates will have to wait longer as the apex bank has maintained status quo on rates yet again. In its bi-monthly monetary policy meeting, held on August 6, 2021, the RBI has decided not to change the repo and reverse repo rate. The repo rate and reverse rate remain at 4% and 3.35%, respectively.

Repo rate has remained at 4% since May 22, 2020; the lowest it has been since April 2001.

FD investors having been waiting for the key rates to be hiked since interest rates on their deposits have been lowered little by little by financial institutions like banks and NBFCs for the last two years.

However, things could change soon. Many economic indicators including inflation being on the higher side, bigger government borrowing programme, 10-year G-sec yield at around 6.2% etc. are hints that the RBI could hike rates in the near future.

“We expect the timing of first policy rate increase in the future to coincide with confidence that vaccinations provide adequate protection against a relapse,” says Prithviraj Srinivas, Chief Economist, Axis Capital.

In such a scenario some smart moves can help FD investors make the best of the current scenario. Here is how FD investors can enhance return on their deposits.

Short term FD rates may rise first
Whenever the interest rate cycle makes a U-turn from the bottom, it is typically the short to medium term interest rates that are likely to rise first. As far as long-term interest rates are concerned, it will take a little longer for these rates to go up significantly.

“We could see the yield curve gradually flatten with shorter end moving up tad faster than longer end. Markets could start pricing in possibilities of rev repo rate hike, though the policy refrained from any such guidance,” says Lakshmi Iyer, CIO (Debt) & Head Products, Kotak Mutual Fund.

Make the most of short term rate hike
If you are planning to book an FD now or are looking to renew your existing FD, then it will be better to go for shorter term deposit, say one year or lower, so that your deposit is not locked at a lower rate for long. Whenever the short to mid term rates rise, you can start increasing the tenure of the FDs accordingly.

Also Read: FD interest rates: Here are the top 5 bank fixed deposit interest rates

Make an FD ladder to guard against lowest return
If your deposit is up for renewal in the current scenario when the interest rate cycle is close to its lowest point, it could be a stressful situation. However, you can avoid this by creating an FD ladder. To do so you need to divide one big FD into smaller FDs, and book these for different tenures. You can do this in a way that one FD matures each year.

For instance, if you have a Rs 5 lakh FD, you can divide it into 5 parts and book 5 FDs of different tenures of 1 year, 2 years, 3 years, 4 years and 5 years. After one year, when the one-year tenure FD matures renew it for 5 years. After two years your FD with 2-year tenure will mature so you can renew it again for next 5 years. Now repeat this exercise each year and your ladder will be ready. This will ensure that not all of your deposits are locked at the lowest interest rate at the same time and your average return is on the higher side.

Consider floating rate options
When you do not wish to take any chances against the fluctuating interest rate cycle then floating rate FDs and floating rate bonds are good options if you want to lock in your funds for the long term.

Here is how floating rate FDs can help you
Many banks and non-banking financial companies have started offering floating rate fixed deposits. The interest rate on such a deposit is linked to a benchmark and the interest rate moves in tandem with the movement in the benchmark rate.

Indian Overseas Bank, for example, offers the floating rate FDs for 3-10 year tenures. It has kept the daily average of last six months of 5-year G-Sec rate and 10-year G-sec rate as benchmarks for 3-5 years and 5-10 years tenures, respectively. The 10-year G-sec yield on July 30, 2021, as per the data given by RBI, was 6.20%, which is much better than the FD rates of most large banks.

If you are not a senior citizen, then the best interest rate that you can get from a big bank will be around 5.25-5.5%. For instance, SBI is offering an interest rate of 5.40% on FD with tenure above 5 years to 10 years.

So, the floating rate option appears to be giving better interest rate of 6.20% (if the 6 months average is also the same) even in the current scenario. Once the overall interest rate scenario changes and rates start moving up, then depositors will get the real benefit of a floating rate FD as the interest rate on these FDs will also go up.

Invest in RBI floating rate bond for non-cumulative deposit
If you are a senior citizen and are looking for an option that gives you a regular income, then you should go for RBI Floating Rate Bonds. This bond is currently giving a return of 7.15% which higher than bank FDs. It has a tenure of 7 years and pays interest semiannually. Though senior citizens have better options like SCSS and PMVVY, however, they cannot invest more than Rs 15 lakh each in these two options. So the RBI Floating Rate Bond is a good option for those senior citizens who have exhausted the investment limit in the SCSS and PMVVY.

Also Read: Government launches 7.15% floating rate bonds: Here’s all you need to know

Also Read: RBI floating rate bonds interest rate to remain 7.15% till June 30, 2021

Rate hike on the horizon
Signs of an interest rate reversal have been visible since the early part of 2021. Though the central bank did not change the repo rate since May 2020, it increased the Cash Reserve Ratio (CRR) twice, from 3% to 3.50% on March 27 and again to 4% on May 22 in 2021. Increase in CRR is an indication of the central bank’s intention to suck liquidity from the system which can push rates up.

Other than this, certain banks, over the past few months have started hiking FD rates. On January 8, 2021, the State Bank of India (SBI) announced a marginal increase in its bulk deposit interest rate above Rs 2 crore by 0.1%. It increased it for deposits with tenures ranging from 180 days to 2 years.

In April, private lender HDFC raised its deposit rates by 10-25 basis points. SBI and housing finance company, HDFC, are often seen as trend setters as far as interest rates on loans and deposits are concerned.



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Fed notes improving economy, a step toward easing support

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The Federal Reserve said Wednesday that the US economy is strengthening and making progress on the Fed’s employment and inflation goals, a small step toward dialling back its ultra-low-interest rate policies.

The statement the Fed issued after its latest policy meeting said that ongoing vaccinations were helping the economy. But it dropped a sentence it had included after its previous meeting that said those vaccinations have reduced the spread of Covid-19.

That was the only reference to the delta variant that has caused a spike in Covid cases in several hotspots in the United States and many other countries.

The central bank said it’s keeping its benchmark short-term rate pegged at nearly zero, where it has remained since the pandemic tore through the economy in March 2020. The Fed is also buying $120 billion in Treasury and mortgage bonds each month — purchases intended to lower rates on longer-term consumer and business loans to spur more borrowing and spending.

The Fed’s latest policy statement comes as the economy sustains a strong recovery from the pandemic recession, with solid hiring and spending. But it also coincides with uncomfortably high inflation and concerns about the spread of the delta variant.

Key indicators

The economy’s widespread improvement is a key reason why Chair Jerome Powell and other Fed policymakers are believed to be moving closer toward pulling back their economic support. Consumer prices also jumped 5.4 per cent in June from a year ago, the biggest increase in 13 years. And a separate inflation gauge the Fed prefers has risen 3.9 per cent in the past year.

Last month’s inflation surge marked a fourth straight month of unexpectedly large price increases, heightening fears that higher costs will erode the value of recent pay raises and undermine the economic recovery.

The main concern is that the Fed will end up responding too late and too aggressively to high inflation by quickly jacking up interest rates and potentially causing another recession. Earlier this month, Republicans in Congress peppered Powell with questions about inflation.

After a period of broad agreement during the pandemic crisis, the Fed’s policymakers appear divided over how soon to start reducing — or “tapering,” in Fed parlance — the monthly bond purchases. Several regional Fed bank presidents support tapering soon, including James Bullard of the St. Louis Fed, Patrick Harker of the Philadelphia Fed and Robert Kaplan of the Dallas Fed.

But Powell has said that the central bank wants to see “substantial further progress” toward its goals of maximum employment and price stability before it would consider reducing the bond purchases.

Inflation

To make up for years of inflation remaining below 2 per cent, the Fed wants inflation to moderately exceed its 2 per cent average inflation target and to show signs of remaining above that level for an unspecified time.

In recent months, as consumer demand has exceeded the supply of goods and services in some industries, inflation — led by sharp price increases for things like used and new cars, hotel rooms and airline tickets —has topped 2 per cent.

It’s not yet clear how the highly contagious and fast-spreading delta variant of the coronavirus might affect the U.S. or global economies or how the job market will fare in coming months. Hiring could accelerate in September as schools reopen, more parents can take jobs and expanded unemployment aid programs expire.

The bond market is signalling little concern about future inflation, with the yield on the 10-year Treasury note has fallen by nearly a half-percentage point since the spring, to about 1.26 per cent. This also gives the Fed more time to consider its options.

Powell has said the Fed will communicate its intention to taper “well in advance” of doing so. Many economists think that signal will occur in late August or September.

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Bond yields and equities – it takes two to tango

Personal Finance

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In recent months inflation expectations have been on the rise both in India and the developed markets and its impact has been felt on bond yields globally, central bank QE (quantitative easing) notwithstanding. Since then a new narrative has been taking hold amongst some market bulls. This new narrative is that the long-term correlation between bond yields and equities is positive, and hence is not a cause for alarm among equity investors. If expectations of better growth is driving inflation upwards and results in a rise in yields, then it reflects optimism on the economy and equities are likely to do well in such a scenario, is their argument. Is there data to support these claims? Is increase in bond yield actually good or bad for equities?

Inconsistent narratives

When movement of bond yields in any direction is used as a justification for equities to go up, then you must become circumspect. Since the launch of monetary stimulus last year globally by central banks and the crash in bond yields and deposit rates, the narrative that was used to justify a bull case for equities (which played out since the lows of March 2020) was that there is no alternative to equities. Hence, when bond yields actually start moving up as they have since early part of this year, an alternative for equities is actually emerging. So, market bulls have now shifted the narrative to why increase in bond yields this time is positive for equities as in their view bond yields are rising in anticipation of better economic growth. Well actually by this logic, last year bond yields fell in anticipation of a recession, so ideally it should have been negative for equities, right? Logic is the casualty when goal posts are changed.

Economic theory vs reality

Theoretically, increase in bond yields is negative for equities. This is for four reasons.

One, increase in yields will make borrowing costs more expensive and will negatively impact the profits of corporates and the savings of individuals who have taken debt.

Two, increase in bond yields is on expectations of inflation and inflation erodes the value of savings. Lower value of savings, implies lower purchasing power, which will affect demand for companies.

Three, increase in bond yields makes them relatively more attractive as an investment option; and four, higher yields reduce the value of the net present value of future expected earnings of companies. The NPV is used to discount estimates of future corporate profits to determine the fundamental value of a stock. The discounting rate increases when bond yields increase, and this lowers the NPV and the fundamental value of the stock.

What does reality and data indicate to us? Well, it depends on the period to which you restrict or expand the analysis (see table). For example if you restrict the analysis to the time when India had its best bull market and rising bond yields (2004-07), the correlation between the 10-year G-Sec yield and Nifty 50 (based on quarterly data from Bloomberg) was 0.78. However if you extend your horizon and compare for the 20 year period from beginning of 2001 till now, the correlation is negative 0.15. The correlation for the last 10 years is also negative 0.75.

In the table, we have taken 4 year periods since 2000 and analysed the correlation, on the assumption that investors have a 3-5 year horizon. The correlation is not strong across any time period except 2004-07 . It appears unlikely we will see the kind of economic boom of that period right now. That was one of the best periods in global economy since World War 2, driven by Chinese spending and US housing boom as compared to current growth driven by monetary and fiscal stimulus, the sustainability of which is in doubt in the absence of stimuli. This apart, Nifty 50 was trading at the lower end of its historical valuation range then versus at around its highest levels ever now. Inflationary pressures too are higher now. In this backdrop, the case for a strong positive correlation between equities and bond yields is weak.

What it means to you

What this implies is that the data is not conclusive and claims that bond yields and equities are positively correlated cannot be used as basis for investment decisions. At best, one can analyse sectors and stocks and invest in those that may have a clear path to better profitability when interest rates increase for specific reasons. For example, a company having a stronger balance sheet can gain market share versus debt-laden competitors; market leaders with good pricing power can gain even when inflation is on the rise.

A final point to ponder upon is whether a market rally that has been built on the premise that there is no alternative to equities in ultra-low interest rate environment, can make a transition without tantrums to a new paradigm of higher interest rates even if that is driven by optimism around growth. An increase in Fed expectations for the first interest rate increase a full two years from now, caused temporary sell-offs across equites, bonds and emerging market currencies, till comments from Fed Governor calmed the markets. These may be indications of how fragile markets are to US interest rates and yields.

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RBI’s MPC begins deliberations amidst hopes of status quo in policy rate

Banking & Finance

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The Reserve Bank of India’s rate-setting panel, Monetary Policy Committee (MPC), began its three-day deliberations on Wednesday amid expectations of status quo on the benchmark rate, mainly on account of uncertainty over the impact of the second wave of the Covid-19 pandemic.

Moreover, fears of firming inflation may also refrain the MPC from tinkering with the interest rate. . The outcome of the bi-monthly monetary policy meeting will be announced on Friday.

Also read: How the RBI managed a large surplus transfer to the Centre in a difficult year

The RBI had kept key interest rates unchanged at the last MPC meeting held in April. The key lending rate, the repo rate, was kept at 4 per cent and the reverse repo rate or the central bank’s borrowing rate at 3.35 per cent.

M Govinda Rao, Chief Economic Advisor, Brickwork Ratings, said the better-than-expected GDP numbers provide the much-needed comfort to the MPC on the growth outlook.

However, with the imposition of partial lockdown-like restrictions to contain the virus spread in several parts of the country, the downside risk on growth recovery has intensified, he said.

“Hence, the RBI is likely to continue with its accommodative monetary policy stance. Considering the risk of inflation emanating from the rising commodity prices and input costs, Brickwork Ratings expects the RBI MPC to adopt a cautious approach and hold the repo rate at 4 per cent,” he noted.

Dhruv Agarwala, Group CEO, Housing.com, Makaan.com and PropTiger.com believes the RBI can maintain its accommodative stance in light of the economic impact of the second wave of Covid-19, without endangering its key goal of keeping inflation under control.

Reviving growth has become an important objective due to the economic damage caused by the recent lockdowns, he said, and added the RBI should also consider providing more liquidity to the National Housing Bank to enable the stability of housing finance companies, which in turn will allow the real estate sector to expand.

Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank was of the view that in the current environment, the choices before the Monetary Policy Committee may be limited.

“With the second phase of the pandemic impacting consumption and growth, the MPC will likely maintain status quo on policy rates, continue with an accommodative policy stance and ensure adequate liquidity in the system – all in an effort to stimulate growth. While it will keep one eye on inflation levels on the back of rising global commodity prices, it currently will focus on supporting economic growth,” Ekambaram said.

According to Sandeep Bagla, CEO of TRUST AMC, “It is expected to be a no change policy, with continued economy friendly soft interest rate bias.”

The RBI annual report released last week has already made it clear that “the conduct of monetary policy in 2021-22 would be guided by evolving macroeconomic conditions, with a bias to remain supportive of growth till it gains traction on a durable basis while ensuring inflation remains within the target.” The Reserve Bank, the report added, would ensure that system-level liquidity remains comfortable during 2021-22 in alignment with the stance of monetary policy, and monetary transmission continues unimpeded while maintaining financial stability.

In the assessment of the RBI, the evolving CPI inflation trajectory is likely to be subjected to both upside and downside pressures. The food inflation path will critically depend on the temporal and spatial progress of the south-west monsoon in 2021.

The government has retained the inflation target at 4 per cent with the lower and the upper tolerance band of 2 per cent and 6 per cent, respectively, for the next five years (April 2021 – March 2026).

Also read: ‘RBI may keep repo rate unchanged’

Retail inflation, based on Consumer Price Index (CPI), slipped to a three-month low of 4.29 per cent in April mainly on account of easing of prices of kitchen items like vegetables and cereals. The RBI mainly factors in the CPI while arriving at its monetary policy.

As per the RBI annual report, supply-demand imbalances may continue to exert pressure on food items like pulses and edible oils, while prices of cereals may soften with bumper foodgrains production in 2020-21.

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Airtel Payments Bank offers 6% per annum interest on deposits of over Rs 1 lakh, BFSI News, ET BFSI

Banking & Finance

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Airtel Payments Bank on Monday announced its customers will get an increased interest rate of 6 per cent per annum on savings account deposit of over Rs 1 lakh. The move follows Airtel Payments Bank becoming the first payments bank to implement an enhanced day-end savings limit of Rs 2 lakh, as per the Reserve Bank of India (RBI) guidelines, the company said in a statement.

Airtel Payments Bank has over 5.5 crore engaged users across its operations, the statement added.

The interest rate is at 2.5 per cent per annum for a deposit up to Rs 1 lakh.

Announcing the higher interest rate on savings account deposits of over Rs 1 lakh, Anubrata Biswas, CEO of Airtel Payments Bank, said, “RBI’s increased savings deposit ceiling is a major milestone for payments banks as this was a key ask from customers”.

With an “attractive” interest rate on deposit sums above one lakh, Airtel Payments Bank is making banking proposition even more rewarding, Biswas added.

“Our unmatched footprint of 5,00,000 banking points and a global first secure and simple experience delivered digitally, Airtel Payments Bank offers a market-leading proposition for both the urban digital and the rural underbanked customer,” Biswas pointed out.

The new interest rate regime is an important addition to the bank’s suite of solutions.

Customers can open an Airtel Payments Bank account within minutes with a video call from the Airtel Thanks app.

The bank offers a digital savings account – Rewards123, which offers more value to customers when they transact digitally using the account.



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Will try to keep soft interest rate regime as long as possible: SBI chief

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State Bank of India will try to keep the interest rates benign as long as possible with a view to supporting the economic growth, its chairman Dinesh Kumar Khara has said.

On the impact of the second wave of Covid-19 on non-performing assets of the bank, the SBI chief said that as the lockdown was not pan-India, one will have to wait and watch to assess its impact on the banking sector.

Impact of local restrictions

Observing that multiple variables including inflation have a bearing on the interest rates, he said, “our effort is to support the growth initiatives. To really ensure that happens, we will try to keep the soft interest rate regime for as long as possible.” In an interview to PTI, Khara said it is too early to give any colour to likely scenario of NPAs because of local restrictions.

Also read: SBI’s Business Activity Index dips to a new low

The impact of lockdown differ from State to State as it is not uniform, he said, adding, “so, probably we can wait and watch for some more time before making any comment on impact on economy and NPA situation.” Speaking about various initiatives of the country’s largest lender, Khara said, SBI has decided to set up makeshift hospitals with ICU facilities for Covid-19 patients in some of the worst affected States.

Fighting the pandemic

The bank has already earmarked ₹30 crore and is engaging with non-governmental organisations (NGOs) and hospital management for setting up medical facilities on an emergency basis for the treatment of Covid-19 patients.

He said the bank intends to put in place 1,000 beds with 50 ICU facilities in the States that are the worst affected.

SBI is also collaborating with hospitals and NGOs to provide oxygen concentrators for patients.

“We have put in place an action plan. We have earmarked ₹70 crore-plus out of which we are giving ₹21 crore to 17 circles for Covid-19 related initiatives,” he said.

For the safety of employees and their families, he said, the bank has tied up with hospitals across the country to facilitate treatment of those who have fallen sick on a priority basis.

Also read: Banks roll out special schemes to protect, treat employees amidst Covid surge

About 70,000 employees out of 2.5 lakh strong staff strength have already got vaccinated. The bank has decided to bear the cost of vaccination for its employees and their dependent family members.

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SBI cuts minimum interest rate on home loans up to ₹30 lakh to 6.70 per cent

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State Bank of India (SBI) has cut the minimum interest rate at which its home loans up to ₹30 lakh will start from 6.95 per cent to 6.70 per cent.

The new interest rate is effective from May 1, 2021.

The home loan rate cut comes exactly a month after the bank hiked the minimum interest rate on home loans by 25 basis points (bps) from 6.70 per cent to 6.95 per cent.

For home loans above ₹30 lakh and up to ₹75 lakh, the interest rate will start at 6.95 per cent. For big-ticket home loans above ₹75 lakh, the interest rate will be 7.05 per cent, India’s largest bank said in a statement.

SBI said women borrowers will get a special concession of 5 basis points (bps). Further, a 5 bps concession is being offered as a digital incentive to customers applying for home loans via YONO digital banking platform. One basis point is equal to one-hundredth of a percentage point.

CS Setty, MD (Retail & Digital Banking) said, “The affordability for the consumer increases immensely with the present home loan interest rate offerings, which reduce the EMI (equated monthly installment) amounts substantially. I am sure these measures will give a fillip to the real estate industry too.”

SBI had hiked the minimum interest rate on home loans by 25 basis points (bps) from 6.70 per cent to 6.95 per cent with effect from April 1, 2021.

After SBI upped the minimum interest rate at which it will offer home loans last month, Kotak Mahindra Bank, in a statement issued on April 12, 2021, said it will continue its special interest rate on home loans of 6.65 per cent per annum.

“In the interest of consumers and on the back of strong demand trends, Kotak continues to offer possibly the lowest home loan interest rate in the market,” it said the statement, adding that the rate is applicable across all loan amounts.

“Both fresh home loan applicants and balance transfer cases are eligible for interest rates beginning at 6.65 per cent per annum. Interest rates are linked to borrowers’ credit score and the Loan to Value ratio,” Kotak Mahindra Bank further said.

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SBI hikes minimum interest rate on home loans by 25 bps to 6.95%

Banking & Finance

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In a clear signal that soft interest cycle for home loan borrowers is over, State Bank of India (SBI) has hiked the minimum interest rate on home loans by 25 basis points (bps) from 6.70 per cent to 6.95 per cent with effect from April 1, 2021.

This hike in minimum home loan rate by SBI will prompt other lenders to follow suit.

SBI had lowered the minimum interest rate from 6.80 per cent to 6.70 per cent on March 1, 2021 for a limited period up to March 31, 2021.

The Bank will also charge a consolidated processing fee. This will be 0.40 per cent of the loan amount plus applicable GST, subject to a minimum of ₹10,000 and maximum of ₹30,000 plus GST.

However, for builder tie-up projects where individual TIR (title investigation report) and valuation is not required, the processingaforementioned fee will be 0.40 per cent of loan amount subject to maximum recovery of ₹10,000 plus applicable tax. And, if TIR and Valuation is required, then normal charge will be applicable., as per the Bank’s website.

The lender had waived home loan processing fees till March 31, 2021.

In February, the Bank said it expects to double its home loan portfolio in the next five years to Rs ₹10 lakh crore on the back of higher economic growth and growing preference of the new generation to buy a home early.

SBI took about 10 years to grow its home loan portfolio from ₹89,000 crore in FY2011 to touch the ₹5 lakh crore mark, Chairman Dinesh Kumar Khara told media in February 2021.

SBI took about 10 years to grow its home loan portfolio from ₹89,000 crore in FY2011 to touch the ₹5 lakh crore mark, Chairman Dinesh Kumar Khara told media at a press meet in February 2021.

 

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