It has been two months the public sector banks (PSBs) have reduced interest rates of home loans up to Rs 20 lakh, but according to records of PSBs only 28,000 proposals have been cleared and around Rs 1,550 crore have been distributed under the special scheme announced by the banks.
According to data compiled by industry bodies and the government Punjab National Bank (PNB) India’s second-largest public sector bank has cleared only 35 loan proposals and has distributed Rs 1.70 crore under the scheme. While the State Bank of India (SBI) country’s largest lender has approved around 6,500 applications.
A special loan package pushed by the government to stimulate growth in real estate public sector banks announced freeze on interest rates on home loans up to Rs 5 lakh at 8.5 per cent for five years. Therefore for loans between Rs 5 lakh and Rs 20 lakh, the rate was freeze at 9.25 per cent. SBI moved ahead and reduced the rate further to 8 per cent for a year and others such as Central Bank of India followed on the line.
In addition borrowers can take loan of up to Rs 5 lakh by paying 10 per cent upfront and in case of home loans of Rs 5-20 lakh, and the upfront payment has been fixed at 15 per cent compared to 25-30 per cent for other loans.
Bankers pointed out that buyers are expecting real estate prices to fall further, thus many are deferring a purchase for the moment.
"Real estate firms are grappling with a sharp drop in demand and mounting debt repayment. They will have to reduce prices substantially to clear inventory. Once that happens, we may see some improvement in response," said a senior public sector bank executive.
Banker added although prices have come down by around 30 per cent in certain pockets, but buyers are more worried about the equated monthly installments (EMIs), which will drop down only when the real estate prices dropped more. "Interest rate is a smaller worry," said a bank executive. "With the economic slowdown, many buyers prefer to stick to rented accommodation instead of purchasing their own apartment," another executive said.
Moreover, many banks are not interested in giving out home loans under this scheme as they are worried over their cost of funds. According to analyst at a Mumbai-based brokerage funds being raised at higher costs, public sector banks will feel pressure on their spreads if they hawked the special scheme too aggressively.
Besides the cost of funds, banks also have to accept the cost of providing life insurance cover to the borrowers. Moreover they the banks cannot charge any processing fee, which adds to the overall cost.
Bankers added that even for normal home loans, demand has slowed down in a hope of further reduction in real estate prices. As per the data provided by the Reserve Bank of India, the growth in housing loans has dropped to 8.8 per cent for the year up to December 19, 2008, in comparison to a year-on-year rise of 14.8 per cent in the period up to December 21, 2007. In the year up to December 19, 2008 banks have been able to sanction home loans of Rs 21,989 crore, as against Rs 31,780 crore in 12 months ended December 17, 2007.
