Banks have unleashed a rate cut war in the home loan space on the last lap of the current financial year (FY) 2021 to bulk up their retail portfolio.
State Bank of India (SBI) was the first off the blocks, announcing on March 1 around noon that the minimum interest rate at which it will offer home loans will start at 6.70 per cent (against 6.80 per cent earlier) for a limited period — up to March-end 2021.
Late evening, Kotak Mahindra Bank (KMB) went one better, announcing that the lowest interest rate at which it will offer home loan will be 6.65 per cent (up to March-end 2021) against 6.75 per cent earlier.
Also read: Residential realty recovers on consolidation: ICRA
The move to pare home loan interest rate just for a month seems two-fold. Firstly, banks want to grow their topline due to year-end considerations. Secondly, they are probably signalling to prospective borrowers that home loan interest rates have bottomed out (could rise in the new FY) in the context of rising Government Security (G-Sec) yields.
The move by SBI and KMB could trigger a matching response from other lenders as they may not want to lose business to rivals.
“Banks want to increase their topline towards the year end. Normally, in February and March, they will be in campaign mode for promoting their products.
“Along with the home loan, there will be cross-sell of life insurance policy. If you take a car loan, insurance will come along with that,” said V Viswanathan, banking expert.
He said that banks will try to offset the effect of lower interest rate on home loans through cross-sell of life insurance, which is tacked to the loan.
Moreover, sanctioning loans towards the year end will also help banks to do part-disbursal in the first half of next FY, which is typically a lean season, in respect of stage-based release of installments.
“With low interest rates and various income tax exemptions available on home loans, there will be many people who will want to take a home loan,” said Viswanathan.
That interest rates could be headed north could be gauged from the jump in the yield on the benchmark 10-year G-Sec (carrying 5.85 per cent coupon). The yield on this G-Sec has risen about 33 basis points since January-end 2021.
Ravi Prakash Jaiswal, General Manager, Canara Bank, said: “The outlook for home loans is very good. In the wake of the pandemic, work from home has gained ground. People who were earlier advocating rental housing are now going for their own house.
“And people having their own house are going for bigger house. So, they are disposing off/ renting out their smaller house and going for bigger house.”
Canara Bank kick-started a mega retail expo across the country from February 22 to March 16, 2021 to grow its retail loans such as home, vehicle and education loans.