Banks to offer Diwali bonanza by cutting home loan rates

The creditworthy borrowers can look for Diwali bonanza to be offered by many commercial banks that are planning to cut home loan rates by about 50 basis points after RBI has announced cut in repo rate on Monday.

the State Bank of India (SBI), country’s largest lender will probably will be reducing retail home loan rates before Diwali whereas Punjab National Bank (PNB) and Union Bank of India (UBI) have already cut rates by up to 50 basis points. But all types of loans might not carry the rate cut of 50 basis points.

On the other hand the private home loan providers like HDFC and ICICI have plans to adapt the wait and watch policy, a rate cut by market leader, the SBI, often has a ripple effect on many banks. UBI has cut rates by 50 basis points for loans up to Rs 30 lakh.

The rate cut for loans above Rs 30 lakh, however, will be only 25 basis points. Also, there is the possibility that for loans amounting to Rs 75 lakh and above, the rate cut may be even lower. Sources say some banks may even decide against cutting rates for loans above Rs 75 lakh.

While many banks, including SBI, have set a new ceiling of home loans above Rs 75 lakh; they have laid down a different rate structure for these loans. However the government recognizes only two types of home loans, those below and above Rs 30 lakh. However the former comes under priority sector lending. Moreover, rate cuts will not be applicable to commercial borrowers like real estate companies.

“Our bank is contemplating a rate cut following the recent measures taken by the Reserve Bank. Though the decision to reduce rates may come at any point in time, it’s expected that the bank would take a decision after seeing RBI’s half-yearly monitory policy on October 24,” an SBI official said.

Banks are also following some tough norms. He informed that the bank is following strict norms while deciding an individual’s creditworthiness for allocating loans so that the bank do not have to face the subprime-like situation.

Meanwhile according to finance ministry sources the government is in constant touch with commercial banks to ensure easy liquidity for priority sector loans.

“The government and the central bank have taken a series of measures to infuse liquidity into the system and there is no reason that the banks should be wary of providing credit to genuine borrowers even after that,” an official said.

Banks slowdown on loan disbursal, both retail and corporate

Banks have slowdown the disbursal of loan, both retail and corporate due to shortage of funds. Banks are distributing loans on selective basis and holding back the fund commitments to corporate customers. Bankers pointed out that banks are asking for higher margins and more security against the loans, in loans to sensitive sectors.

A senior official from State Bank of India said the bank is monitoring loans for big projects more carefully, especially real estate loans, for which the bank is asking for higher margins and greater security. “We are being careful about big projects and are examining various parameters, because we are dealing with a scarce commodity,” he said, referring to the cash crunch.

He added but no reduction has been done in retail loans such as housing loans and car loans and loans to SME and agri sectors.

Mr R.S. Reddy, Chairman and Managing Director, Andhra Bank, pointed out that the liquidity crisis in the financial markets is also responsible for driving banks to hold fund commitments to corporate customers.

“With inter-bank call rates going as high as 22 per cent (for temporary liquidity) how can we lend at 15 per cent? So, big corporate customers are being told to wait,” he said.

Mr Romesh Sobti, Managing Director and CEO, IndusInd Bank, also stated that banks have stopped lending. “Lending is down to a trickle in whatever form it is,” he said.

Ms Renu Challu, Managing Director, State Bank of Hyderabad said though there is no respite in applications for funding projects or working capital from the corporates, but there has been decrease in the disbursal due to lack of liquidity from the banks’ side.

“There is no halting of lending, but it has been put on hold in some cases. And, till recently, RBI actually wanted this to tame inflation. However, now with the inflation coming down and RBI sending signals about increasing liquidity, the situation should improve,” she said.

While Mr S.K. Goel, Chairman and Managing Director, UCO Bank, pointed out that banks have not stopped lending, people have started withdrawing deposits more out of panic.

Mr K.R. Kamath, Chairman and Managing Director, Allahabad Bank stated for banks to get short-term money is a costly to affair when the cost of funds moving up significantly. “Banks are facing problem raising short-term funds, therefore, there has been some slowdown in credit disbursements on a short-term basis,” he said.

Mr V.K. Dhingra, Executive Director, UCO Bank, stated that banks are finding lending operations difficult in view of tight liquidity conditions. “There has been some slowdown in short-term lending operations of banks,” he observed.

Mr T.M. Bhasin, Executive Director, United Bank of India said, “There is a demand from the corporate side, liquidity was the only constraint. The present cut in CRR will hopefully enable banks to extend short- term advances.”

According to Mr Deepak Khaitan, Chairman, McNally Bharat Engineering Company Ltd said that on the corporate borrowing front, companies are holding back their decisions to raise funds. “The CRR cut will help infuse some money into the system; however, there seems to be little improvement in the interest rate situation which continues to remain high. We are therefore cutting down our borrowings and repaying our debt in order to reduce the burden,” he said.

Regarding the loans against shares bankers said many of the banks are asking for higher margins or selling shares.

Mr Sobti pointed out, “There are no broker defaults, SEBI has stated this. However, there are small cases of defaults when margin calls are not met. In such cases, shares are being sold by the banks”.

“Due to RBI’s strict restrictions and timely advice on exposure to capital market and commercial real estate, there have been no broker defaults so far. We have been charging slightly higher on loans due to the liquidity crunch,” Mr Goel said.