PSU banks restructuring loan slabs will offer cheaper home loans

The public sector banks (PSU) are restructuring their loan slabs in order to extend the cap to the consumers. Currently PSUs on loans up to Rs 20 lakh are offering a special rate of 9.25% for the first five years, under a special scheme open till June 30, 2009.

But now the state-run banks will offer 9.25% or less interest rate for the first five years on home loans up to Rs 30 lakh aiming to stimulate housing demand.

Executive informed following this bank are working out to extend the cap for availing of the special offer to Rs 30 lakh through restructured loan slabs and keep the offer open for a longer period.

For instance Corporation Bank has indicated that it will replace two concession slabs of up to Rs 5 lakh and Rs 5-20 lakh with a new slab of up to Rs 30 lakh.

“We are working on restructuring of slabs for home loans to bring down the lowest slab to Rs 30 lakh. We find that 75 % of the demand for home loans was in this segment,” the bank’s chairman and managing director JM Garg informed.

He said the rate of interest for the first five years will have a ceiling set at 9.25% or lower. Mr Garg told, “There is further room for interest rate cuts and our next asset liability committee is to take a call”.

IDBI Bank chief financial officer RK Bansal also confirmed that the bank is having final round of discussions on restructuring of the slabs, whereas other public sector banks such as Canara Bank have already begin the exercise.

It is expected the steps taken by the state-run banks will help in stimulating demand for new homes, which cratered since September last. Indeed, the December quarter saw insignificant growth in housing loan off as compared to the previous quarter.

However the demand for lower-priced houses showed improvement in the March quarter, with developers reducing prices and banks launching special schemes.

In metropolitan cities as well as tier-I and tier-II cities banks witnessed a surge in
demand for sub-Rs 30 lakh home loans.

Kotak Mahindra executive vice-president Kamlesh Rao pointed out, “While home loans in the sub-30 lakh category industry is seeing a higher growth of around 10-15%, the Rs 30 lakh plus category is showing a growth of 5-10%.”

Currently, state-run banks are charging 9.75-10% on loans of Rs 30 lakh.

After restructuring of loan slab monthly payment on a 20-year Rs 30 lakh loan will drop roughly Rs 500 for every 25 basis cut in interest rates.

Thus, a rate of 9.25% or lower could leave Rs 1,500 or more will leave more money in the hands of the buyer every month.

According to the special IBA (Indian banking Association) package open till June 30, housing loans of up to Rs 5 lakh draw a maximum interest rate of 8.5% in the first one year, while loans between Rs 5 lakh and Rs 20 lakh attract 9.25% for the first five years.