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.