State Bank of India (SBI), country’s largest lender has decided to increase loan limit by ten-fold given to individuals who plan to buy land to build a house as bank moves forward into the housing segment.
As per the new proposal the bank will be lending Rs 10 crore for buying land for housing against the earlier cap of Rs 1 crore, informed a senior SBI official. The bank has also done modification in the norms pertaining to the construction period if the project is undertaken by government agencies. At present a project must be completed within two years.
A senior SBI official said, “A customer will also be eligible to avail another housing loan for other housing-related construction on that plot, enjoying the benefit of running both the loans concurrently.”
Moreover bank has set the margin money limit – the amount a customer has to pay upfront for availing a loan — at nearly 35% for loans above Rs 1 crore.
For loans up to Rs 75 lakh, bank has fixed the margin money at 20%. It is believed bank’s latest move to push ahead its housing sector shows its troubles with excess liquidity and a tepid credit offtake.
“We have a liquidity of over Rs 40,000 crore; schemes such as this will help us achieve our credit growth targets,” the official said.
The bank has set a target of increasing its credit growth by around 22%. Last year, the RBI had revised the credit growth target for commercial banks, the money they lend to customers, to 16% from 18%.
SBI has already started pushing forward its housing sector recently it extended its popular 8% home loan scheme, or teaser loans, until June 30.
It is also trying to work out other avenues to increase the credit offtake, though it will take steps to see that the due diligence process doesn’t suffer.
“To minimize fraud risk, two title search reports from different lawyers will be obtained before sanctioning the loan,” the official said.
It is believed this sharp increase in the loan amount will boost the real sector, which is at present, in spite of the return of buyers, is suffering from a big drop in the banking credit. According to RBI figures, for the 11 months to end February loans to the realty sector had decreased by 97% to Rs 842 crore as against Rs 33,617 from a year ago.
“Schemes such as this will indirectly ensure credit flow to these companies,” said a senior official of a real estate company.
Friday, May 21, 2010
Wednesday, May 5, 2010
LIC Housing Finance, a subsidiary of Life Insurance Corporation of India (LIC), will be applying for a banking license if it fulfills the conditions laid down by Reserve Bank of India (RBI) in its guidelines for fresh licenses for private sector companies. If its not possible to venture into banking with its parent company, LIC, the home loan company will continue with its plans of foraying into banking if it qualifies the proposed RBI guidelines.
R R Nair, director and chief executive officer of LIC Housing Finance, said in a press conference called to announce the company’s fourth quarter results, “We are interested in applying for a banking license. LIC may or may not be part of the venture because it is a public sector organization and has its own regulations to follow. We have not initiated any talks with RBI. We are waiting for the guidelines from the central bank.”
In the next six months company will also launch its real estate venture capital fund with an initial seed capital of Rs 500 crore. Nair said, “About 20 per cent of the capital will be from LIC and the housing finance company and the remaining would be mobilized from HNIs (high net worth individuals) and institutions.” Earlier company had planned to get into joint venture for this but it has changed its mind. Now it will be a subsidiary whereas LIC and the home finance company will be major shareholders. It will be investing in real estate projects in residential and commercial areas.
In Financial Chronicle it was first reported that LIC and LIC Housing Finance will start a real estate fund with a corpus of Rs 500 crore.
The company is also looking to raise Rs 20,000 crore during the financial year through non-convertible debentures and public deposits.
However in 2009-10 company share of home loans have increased by 12 per cent as against 6 per cent in 2008-09. The company offers special home loan rate of 8.9 per cent fixed for three years and a 8.75 per cent floating rate. By the end of fiscal year in March 2010, the company had approved Rs 18,043 crore of loans to individuals and real estate developers and disbursed Rs 14,853 crore. Out of this, company sanctioned about Rs 14,151 crore home loans and disbursed amount was Rs 12,448 crore. The company registered a 36 per cent year-on-year rise in net profit to Rs 213.51 crore in 2009-10.
R R Nair, director and chief executive officer of LIC Housing Finance, said in a press conference called to announce the company’s fourth quarter results, “We are interested in applying for a banking license. LIC may or may not be part of the venture because it is a public sector organization and has its own regulations to follow. We have not initiated any talks with RBI. We are waiting for the guidelines from the central bank.”
In the next six months company will also launch its real estate venture capital fund with an initial seed capital of Rs 500 crore. Nair said, “About 20 per cent of the capital will be from LIC and the housing finance company and the remaining would be mobilized from HNIs (high net worth individuals) and institutions.” Earlier company had planned to get into joint venture for this but it has changed its mind. Now it will be a subsidiary whereas LIC and the home finance company will be major shareholders. It will be investing in real estate projects in residential and commercial areas.
In Financial Chronicle it was first reported that LIC and LIC Housing Finance will start a real estate fund with a corpus of Rs 500 crore.
The company is also looking to raise Rs 20,000 crore during the financial year through non-convertible debentures and public deposits.
However in 2009-10 company share of home loans have increased by 12 per cent as against 6 per cent in 2008-09. The company offers special home loan rate of 8.9 per cent fixed for three years and a 8.75 per cent floating rate. By the end of fiscal year in March 2010, the company had approved Rs 18,043 crore of loans to individuals and real estate developers and disbursed Rs 14,853 crore. Out of this, company sanctioned about Rs 14,151 crore home loans and disbursed amount was Rs 12,448 crore. The company registered a 36 per cent year-on-year rise in net profit to Rs 213.51 crore in 2009-10.
Tuesday, March 30, 2010
To save taxes repay your home loan
To save tax you should repay your home loan. Under Section 24 of the Income Tax Act, interest paid up to Rs 1.5 lakhs a year on a home loan can be set off against 'loss' from other heads for a self-occupied property. Suppose the property has been acquired before April 1, 1999, interest up to Rs 30,000 a year can be set off. If the property has been rented out, the entire interest paid is deductible from the taxable income after computing rental income. The loan taken for renovation then interest up to Rs 30,000 a year is deductible.
Under Section 24 of the Income Tax Act, the pre-equated monthly installment (pre-EMI) interest amount (the interest amount paid during construction) is deducted equally over five years from the year of completion of construction.
You can not claim tax benefit on loan taken only for purchasing land, but if you take a composite loan (for land and house construction) you can claim income tax benefits only after the completion of the construction.
You can claim tax benefits on loans taken for construction of a residential property, buy a residential property, extend a house, and for major repairs or renovation of a house. As the construction progresses the home loan installment is given.
However during the construction period, you have to pay pre-EMI interest every month. The entire pre-EMI interest paid is allowed as a deduction (under Section 24) equally over five years starting from the year in which the construction is completed. In case of a self occupied house you can claim total deduction towards interest on the home loan is up to Rs 1.5 lakhs a year. While there is no limit for deduction on interest paid towards a second home loan provided you add the rental income (annual rental value of your second house) to your income. Thus the annual rental value will be the higher of actual rent received a year, municipal value, and fair rent fixed.
Moreover out of the total annual rental value, you will get standard deduction of 30 percent available towards maintenance charges and municipal taxes. Even the insurance premiums paid on the property can also be deducted.
However the deduction on principal loan amount repaid is set to Rs 1 lakh.
In case of personal loan, taken to purchase or construct a house, the tax benefit can be claimed on both principal and interest paid. But if you have borrowed the loan from a friend or relative, you will get tax benefit only on the interest paid.
If there are co-owners of the property then both can claim tax benefits separately, as per the shareholding in the property. If the ratio of shareholding is not mentioned in the purchase agreement, they can execute an agreement on a requisite stamp paper, mentioning the shares in the property, and claim the benefits separately. Both the co-owners can claim tax deductions up to Rs.1.5 lakhs a year separately towards interest paid for a self-occupied house and the entire interest paid on a rented-out house, after computing rental income received, and also up to Rs 1 lakh towards principal repaid.
Under Section 80C of the Income Tax Act, home loan borrowers can claim a deduction of up to Rs 1 lakh from the taxable income on a loan repaid during the year, along with specified savings instruments. Which means along with other specified savings instruments, a home loan repayment amount, the amount spent on stamp paper and registration costs on registering a house, all up to Rs 1 lakh is deductible from the total income.
In case you sell the property within five years from the year when you started claiming tax benefits, you will lose all the tax benefits you had availed under Section 80C (on the principal loan amount) and the amount will be clubbed to the income of the year in which the property has been sold. Whereas the deductions claimed on interest paid under Section 24 will remain intact.
Under Section 24 of the Income Tax Act, the pre-equated monthly installment (pre-EMI) interest amount (the interest amount paid during construction) is deducted equally over five years from the year of completion of construction.
You can not claim tax benefit on loan taken only for purchasing land, but if you take a composite loan (for land and house construction) you can claim income tax benefits only after the completion of the construction.
You can claim tax benefits on loans taken for construction of a residential property, buy a residential property, extend a house, and for major repairs or renovation of a house. As the construction progresses the home loan installment is given.
However during the construction period, you have to pay pre-EMI interest every month. The entire pre-EMI interest paid is allowed as a deduction (under Section 24) equally over five years starting from the year in which the construction is completed. In case of a self occupied house you can claim total deduction towards interest on the home loan is up to Rs 1.5 lakhs a year. While there is no limit for deduction on interest paid towards a second home loan provided you add the rental income (annual rental value of your second house) to your income. Thus the annual rental value will be the higher of actual rent received a year, municipal value, and fair rent fixed.
Moreover out of the total annual rental value, you will get standard deduction of 30 percent available towards maintenance charges and municipal taxes. Even the insurance premiums paid on the property can also be deducted.
However the deduction on principal loan amount repaid is set to Rs 1 lakh.
In case of personal loan, taken to purchase or construct a house, the tax benefit can be claimed on both principal and interest paid. But if you have borrowed the loan from a friend or relative, you will get tax benefit only on the interest paid.
If there are co-owners of the property then both can claim tax benefits separately, as per the shareholding in the property. If the ratio of shareholding is not mentioned in the purchase agreement, they can execute an agreement on a requisite stamp paper, mentioning the shares in the property, and claim the benefits separately. Both the co-owners can claim tax deductions up to Rs.1.5 lakhs a year separately towards interest paid for a self-occupied house and the entire interest paid on a rented-out house, after computing rental income received, and also up to Rs 1 lakh towards principal repaid.
Under Section 80C of the Income Tax Act, home loan borrowers can claim a deduction of up to Rs 1 lakh from the taxable income on a loan repaid during the year, along with specified savings instruments. Which means along with other specified savings instruments, a home loan repayment amount, the amount spent on stamp paper and registration costs on registering a house, all up to Rs 1 lakh is deductible from the total income.
In case you sell the property within five years from the year when you started claiming tax benefits, you will lose all the tax benefits you had availed under Section 80C (on the principal loan amount) and the amount will be clubbed to the income of the year in which the property has been sold. Whereas the deductions claimed on interest paid under Section 24 will remain intact.
Thursday, March 18, 2010
How to know the eligibility of home loan?
Most of the people don’t have the idea that how much loan they are eligible for? Here we have discussed few things related to home loan which can help you in knowing how much home loan you can take.
First one is eligibility criteria. To decide the amount of home loan two important factors are taken into consideration – income and repayment capacity. The other factors include qualification, age, dependants, assets, liabilities, credit report, savings and the stability and consistency of your occupation also matter. The bank can also calculate the loan amount taking a specific percentage of the cost of the property.
Second is repayment capacity. Banks calculate repayment capacity on the bases of your income and expenditure pattern. It is assumed that you need around 40% of your income as living expenses. For example if you are earning Rs60,000 per month and out of this you are spending Rs25,000 as living expenses and Rs20,000 on heads, such as a car loan, then your eligibility will be calculated on the remaining Rs 15,000.
Then, is the formula to calculate the eligibility.
Home loan eligibility=monthly savings/equated monthly installment (EMI) per lakh x 1 lakh. For a home loan of Rs1 lakh taken for 20 years at 10% interest rate, the EMI would be around Rs965. Thus, in this case the eligibility will be 15,000/965 x 1 lakh, or Rs15.54 lakh.
You can increase the home loan amount. You take joint home loan with your spouse, children, parents or siblings to increase your eligibility. Try to get the longer tenure of loan, this increases the eligibility.
First one is eligibility criteria. To decide the amount of home loan two important factors are taken into consideration – income and repayment capacity. The other factors include qualification, age, dependants, assets, liabilities, credit report, savings and the stability and consistency of your occupation also matter. The bank can also calculate the loan amount taking a specific percentage of the cost of the property.
Second is repayment capacity. Banks calculate repayment capacity on the bases of your income and expenditure pattern. It is assumed that you need around 40% of your income as living expenses. For example if you are earning Rs60,000 per month and out of this you are spending Rs25,000 as living expenses and Rs20,000 on heads, such as a car loan, then your eligibility will be calculated on the remaining Rs 15,000.
Then, is the formula to calculate the eligibility.
Home loan eligibility=monthly savings/equated monthly installment (EMI) per lakh x 1 lakh. For a home loan of Rs1 lakh taken for 20 years at 10% interest rate, the EMI would be around Rs965. Thus, in this case the eligibility will be 15,000/965 x 1 lakh, or Rs15.54 lakh.
You can increase the home loan amount. You take joint home loan with your spouse, children, parents or siblings to increase your eligibility. Try to get the longer tenure of loan, this increases the eligibility.
Wednesday, March 10, 2010
ICICI Bank, Kotak Mahindra hike home and auto loan rates by up to 0.5%
ICICI bank country’s largest private sector bank has withdrawn its 8.25% special home-loan scheme and hiked its auto-loan rates by up to 0.5%, signifying rising interest rate regime.
An ICICI Bank spokesperson told, "Auto loans rack rates have been raised by 0.25%-0.5% depending on (the) segment and tenor with effect from 5th March."
The bank sources have not given any reason for hiking rates but industry experts believe that the bank decision is largely prompted by indications given by the RBI in its last monetary policy review.
In its policy review RBI had hiked the cash reserve ration or the amount banks have to park with the central bank by 0.75% to 5.75%, absorbing Rs36,000 crore from the system in order to absorb excess liquidity from the system. The hike in CRR will be able to absorb Rs 36000 crore from the system.
ICICI Bank special home-loan scheme stands withdrawn from 1st March said the spokesperson. The bank has raised new auto loans which will be in the range of 9.75%-11%.
At present bank is offering home loans up to Rs30 lakh at 8.75%; loans between Rs30-lakh to Rs50 lakh at 9% and those above Rs50 lakh at 9.5%.
Another private sector bank, Kotak Mahindra Bank and its car financing group has also raised its home and car-loan rates.
Bank has hiked its home-loan rates by 0.25%-0.5% with effect from 18th February, Kotak Mahindra Prime (KMP), the car-financing arm of the group, has hiked its loan rates by 0.5%-0.75%.
Kamalesh Rao, Kotak Mahindra Bank's head of retail assets said, "We decided to hike the interest rates for home loans by 0.25%-0.5%. This is primarily to align lending rates in line with the cost of deposits."
He told this year bank registered a growth by 50% in its home-loan segment. KMP chief executive Sumit Bali told that the new lending rates will be effective from 8th March.
Mr Bali said, "We are hiking the lending rates as the cost of funds has gone up by up to 0.75%. We have to pass on this additional cost to customers, which we didn't do last month".
In this financial year KMP total loan book of around Rs 6,500 crore has registered a growth of around 35%. Mr Bali said, the company is looking at loan growth in the range of 15%-20%.
An ICICI Bank spokesperson told, "Auto loans rack rates have been raised by 0.25%-0.5% depending on (the) segment and tenor with effect from 5th March."
The bank sources have not given any reason for hiking rates but industry experts believe that the bank decision is largely prompted by indications given by the RBI in its last monetary policy review.
In its policy review RBI had hiked the cash reserve ration or the amount banks have to park with the central bank by 0.75% to 5.75%, absorbing Rs36,000 crore from the system in order to absorb excess liquidity from the system. The hike in CRR will be able to absorb Rs 36000 crore from the system.
ICICI Bank special home-loan scheme stands withdrawn from 1st March said the spokesperson. The bank has raised new auto loans which will be in the range of 9.75%-11%.
At present bank is offering home loans up to Rs30 lakh at 8.75%; loans between Rs30-lakh to Rs50 lakh at 9% and those above Rs50 lakh at 9.5%.
Another private sector bank, Kotak Mahindra Bank and its car financing group has also raised its home and car-loan rates.
Bank has hiked its home-loan rates by 0.25%-0.5% with effect from 18th February, Kotak Mahindra Prime (KMP), the car-financing arm of the group, has hiked its loan rates by 0.5%-0.75%.
Kamalesh Rao, Kotak Mahindra Bank's head of retail assets said, "We decided to hike the interest rates for home loans by 0.25%-0.5%. This is primarily to align lending rates in line with the cost of deposits."
He told this year bank registered a growth by 50% in its home-loan segment. KMP chief executive Sumit Bali told that the new lending rates will be effective from 8th March.
Mr Bali said, "We are hiking the lending rates as the cost of funds has gone up by up to 0.75%. We have to pass on this additional cost to customers, which we didn't do last month".
In this financial year KMP total loan book of around Rs 6,500 crore has registered a growth of around 35%. Mr Bali said, the company is looking at loan growth in the range of 15%-20%.
Friday, February 26, 2010
Banks seek clarification from RBI on pricing of old home loan rates
The Reserve Bank of India (RBI) has instructed banks to give loans on ‘base rate’ instead of the PLR. The new system will start from April 2010. The base rate will be calculated on a cost-based formula and will be lower than the PLR, although banks will be free to charge a risk spread over the base rate but they cannot lend below the base rate.
However banks have asked for the clarity from RBI on pricing of old home loans once the new ‘base rate’ is adapted as loans given for a longer duration i.e. for 15-20 years, do not have any provision for replacing the prime lending rate (or PLR) – the anchor interest rate to which the floating rates are linked.
Moreover RBI has instructed banks that during the renewal of loans or resetting interest charges, banks should take the ‘base rate’ as the anchor rate. The home loan agreements are like other loan deeds, are legal documents, according to bankers many retail borrowers might resist a switchover from PLR to ‘base rate’ and signing on a new agreement.
Then bankers will also have to struggle with the fact there is no renewal date in case of home loans and existing loan agreements are for the entire tenure of the loan. Also, as the base rate is a floor rate, thus bankers might have to hike the interest rates on some home loans if the base rate of the bank is higher than the existing loan rates.
At least three senior bankers told ET as there is uncertainty on the matter thus they are seeking clarity from RBI on this. “The moot point is the floating rate home loan do not have renewal clause, making it difficult for banks to link these loans to base rate. Alternatively, banks can give customers an option to shift to base rate. But, if customers have availed of loan at rate lower than the base rate, they may resist shifting to base rate. Banks also cannot force base rate on them as it’s a legal document (loan agreement).”
According to bankers the other alternative can be to maintain two parallel rates – PLR and base rate till the maturity of all old loans in their book. But bankers say, RBI might not approve this move.
The RBI main aim is to eliminate the discriminatory prices for old and new customers. At present the old home loan customers are paying higher interest rate in comparison to new home loan borrowers, even though both of them have taken floating rate loans. According to banks they offered new loans at cheaper rate because their incremental cost of funds has come down. But RBI argues that reduction in incremental cost results in reduction of overall cost of funds and thus the benefit of lower rate must be passed to the old home loan borrowers as well. Therefore, if BPLR continues to be anchor rate for old home loans, it might counteract the purpose of introducing base rate.
A senior banker said, “In case of short-term loans given to corporates, individuals and small businessmen, banks may have to keep alive its BPLR. But whether it can be kept active for home loan which has a 15-year maturity is yet not clear.”
The main reason for RBI to introduce the base rate system is to improve the transmission of policy rate to the credit market. Frequently RBI has observed that whenever the policy rates have been reduced banks have not reduced the lending rates by the same quantum. In the policy document of January 2009, RBI governor, D Subbarao pointed out, “While changes in RBI’s policy rates were quickly transmitted to the money and government securities markets, transmission to the credit market was slower. Evidently, the transmission is still in progress.”
Between October 2008 and December 2009, RBI considerably reduced policy rates — the repo rate by 425 basis points and the reverse-repo rate by 275 bps. CRR was also reduced by 400 basis points of NDTL. But the public sector banks reduced BPLR by 125-275 basis points, followed by 100-125 basis points by private banks and 125 basis points by five major foreign banks.
However banks have asked for the clarity from RBI on pricing of old home loans once the new ‘base rate’ is adapted as loans given for a longer duration i.e. for 15-20 years, do not have any provision for replacing the prime lending rate (or PLR) – the anchor interest rate to which the floating rates are linked.
Moreover RBI has instructed banks that during the renewal of loans or resetting interest charges, banks should take the ‘base rate’ as the anchor rate. The home loan agreements are like other loan deeds, are legal documents, according to bankers many retail borrowers might resist a switchover from PLR to ‘base rate’ and signing on a new agreement.
Then bankers will also have to struggle with the fact there is no renewal date in case of home loans and existing loan agreements are for the entire tenure of the loan. Also, as the base rate is a floor rate, thus bankers might have to hike the interest rates on some home loans if the base rate of the bank is higher than the existing loan rates.
At least three senior bankers told ET as there is uncertainty on the matter thus they are seeking clarity from RBI on this. “The moot point is the floating rate home loan do not have renewal clause, making it difficult for banks to link these loans to base rate. Alternatively, banks can give customers an option to shift to base rate. But, if customers have availed of loan at rate lower than the base rate, they may resist shifting to base rate. Banks also cannot force base rate on them as it’s a legal document (loan agreement).”
According to bankers the other alternative can be to maintain two parallel rates – PLR and base rate till the maturity of all old loans in their book. But bankers say, RBI might not approve this move.
The RBI main aim is to eliminate the discriminatory prices for old and new customers. At present the old home loan customers are paying higher interest rate in comparison to new home loan borrowers, even though both of them have taken floating rate loans. According to banks they offered new loans at cheaper rate because their incremental cost of funds has come down. But RBI argues that reduction in incremental cost results in reduction of overall cost of funds and thus the benefit of lower rate must be passed to the old home loan borrowers as well. Therefore, if BPLR continues to be anchor rate for old home loans, it might counteract the purpose of introducing base rate.
A senior banker said, “In case of short-term loans given to corporates, individuals and small businessmen, banks may have to keep alive its BPLR. But whether it can be kept active for home loan which has a 15-year maturity is yet not clear.”
The main reason for RBI to introduce the base rate system is to improve the transmission of policy rate to the credit market. Frequently RBI has observed that whenever the policy rates have been reduced banks have not reduced the lending rates by the same quantum. In the policy document of January 2009, RBI governor, D Subbarao pointed out, “While changes in RBI’s policy rates were quickly transmitted to the money and government securities markets, transmission to the credit market was slower. Evidently, the transmission is still in progress.”
Between October 2008 and December 2009, RBI considerably reduced policy rates — the repo rate by 425 basis points and the reverse-repo rate by 275 bps. CRR was also reduced by 400 basis points of NDTL. But the public sector banks reduced BPLR by 125-275 basis points, followed by 100-125 basis points by private banks and 125 basis points by five major foreign banks.
Tuesday, February 9, 2010
Axis Bank leads in withdrawing teaser home loan scheme
After the Reserve Bank of India has hiked cash reserve ratio (CRR) there are chances banks might start withdrawing teaser home loan offers. Axis Bank India’s third- largest private bank has announced to withdraw its teaser home loan scheme two months before the schedule tenure.
Earlier on January 6 bank had launched a fixed-cum-floating rate home loan scheme. Under this scheme bank has been offering 8.25 per cent interest rate for the first two years. Bank charges 3.5 per cent and 3 per cent interest on loan which is less than the mortgage reference rate for loans up to and above Rs 30 lakh, respectively.
A senior bank executive informed that as the CRR has been hiked due to which it would not be possible for bank to offer a fixed rate for two years. But it will continue to offer 8 per cent fixed rate for the first year.
The bank has also removed the product information from its website. This move of bank has surprised many. A direct selling agent had applied for home loan under the scheme said, “With Axis Bank suddenly withdrawing its teaser rate scheme, I am approaching other banks.”
Last year a number of banks launched special teaser home loan schemes led by countries largest, State Bank of India and Axis was one of the last banks to offer such a scheme.
A senior SBI executive has informed that with the hike in CRR the cost pressure is increasing, but bank will fulfill its commitment and continue to offer the product till the end of March.
However under Housing Development Finance Corporation’s the sanction of loans under teaser rate scheme will close on February 13. The disbursement of loans will be completed by March 31. The Axis bank scheme was advantageous as there was no prepayment penalty. According to industry source, “After two years, if the bank’s rates go up sharply, customers can shift to other banks without any penalty.”
On the other hand, other banks are charging around 2 per cent of the outstanding amount as pre-payment penalty. The hike in CRR by 75 basis points done by RBI is expected to absorb around Rs 36,000 crore from the system. Therefore, this along with advance tax outflows in mid-March is likely to reduce liquidity. In view of this in March most of the banks are likely to review their teaser loan schemes.
Earlier on January 6 bank had launched a fixed-cum-floating rate home loan scheme. Under this scheme bank has been offering 8.25 per cent interest rate for the first two years. Bank charges 3.5 per cent and 3 per cent interest on loan which is less than the mortgage reference rate for loans up to and above Rs 30 lakh, respectively.
A senior bank executive informed that as the CRR has been hiked due to which it would not be possible for bank to offer a fixed rate for two years. But it will continue to offer 8 per cent fixed rate for the first year.
The bank has also removed the product information from its website. This move of bank has surprised many. A direct selling agent had applied for home loan under the scheme said, “With Axis Bank suddenly withdrawing its teaser rate scheme, I am approaching other banks.”
Last year a number of banks launched special teaser home loan schemes led by countries largest, State Bank of India and Axis was one of the last banks to offer such a scheme.
A senior SBI executive has informed that with the hike in CRR the cost pressure is increasing, but bank will fulfill its commitment and continue to offer the product till the end of March.
However under Housing Development Finance Corporation’s the sanction of loans under teaser rate scheme will close on February 13. The disbursement of loans will be completed by March 31. The Axis bank scheme was advantageous as there was no prepayment penalty. According to industry source, “After two years, if the bank’s rates go up sharply, customers can shift to other banks without any penalty.”
On the other hand, other banks are charging around 2 per cent of the outstanding amount as pre-payment penalty. The hike in CRR by 75 basis points done by RBI is expected to absorb around Rs 36,000 crore from the system. Therefore, this along with advance tax outflows in mid-March is likely to reduce liquidity. In view of this in March most of the banks are likely to review their teaser loan schemes.
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