Banks might extend festive offers for two months, not raise loan rates

Every year at the time of Dussehra and Diwali, the demand for loans increases keeping in mind the holiday season ahead banks have decided not to raise home loan rates.

However, when the Reserve Bank of India had revised its police rates in mid-September, several banks had said they might increase their lending rates in October when the base rate, on which loans are priced, is reviewed.

This year also, considering the festival months of October and November, banks may opt for not raising loan rates seeing huge demand in personal, car and home loans, as this is considered to be an auspicious time to buy homes or other assets. During this period, most banks offer special schemes featuring discounts in the form of a waiver in processing fees and lower rates to attract customers.

Oriental Bank of Commerce CMD TY Prabhu said, “Banks may not hike home rates immediately since sales are expected to pick up soon after the Pitr Paksha is over.” During Pitr Paksha (shards), which is related to rites performed by Hindus, many people consider it inauspicious and choose not to take any major investment decisions.

On the other hand banks might be under pressure to raise lending rates in October as their cost of funds has increased by 50 to 100 basis points during the last quarter. Interest rates on bulk deposits and certificate of deposits have crossed 8% for one year compared with 7% a few months ago. Thus, Mr Prabhu said if banks are under pressure to raise lending rates, they might raise the base rate but will also narrow the spread between the base rate and home loan rates. At present, banks have set their base rate in the range of 7.50% to 8%.

The State Bank of India special home loan scheme is going to end on September 30, but its officials have said most probably bank will extend the scheme for another quarter to attract customers in the festive season. Under the special scheme SBI is offering a fixed rate of interest of 8% in the first year, 9% in the second and third year, after which the floating rate is applicable.

Punjab National Bank, the second-largest bank, under its festive offer on home loans has fixed rate of interest of 8.5% for the first three years and afterwards the prevailing floating rates will be applicable.

Last week, Corporation Bank also launched its special home loan and vehicle loan scheme, known as grand festival offer, in which it is offering loans up to Rs 30 lakh at base rate of 7.75% for the first year and 50bps above the base rate for second and 8.25% in the third year. But bank will charge 0.25% more if the loan is above Rs 30 lakh. SM Swati, general manager in charge of retail lending at Corporation Bank said, “So far, demand for home loan has not been very encouraging, although we are better than the peers. But with this offer, we expect to deploy Rs 1,000 crore.”

Indiabulls Financial Services launches special home loan scheme for salaried class

Indiabulls Financial Services, a financial service provider launched a special home loan scheme for the salaried class. Under this scheme it is offering 8.5% interest up to March 31, 2011, followed by 9.5% till 2012, the company said in a statement.

It said, subsequently from the third year onwards 9.5% floating rate will be charged.

Earlier, country largest mortgage lender HDFC had launched a dual rate home loan (DRHL), in which for the initial year fixed interest will be charged and later it will change to floating rate.

All the new home loan customers, to avail the new DRHL-4 offer have to apply on or before September 30 and take at least part disbursement before October 31.

Indiabulls Financial Services CEO Gagan Banga said, "Introduction of this new home loan scheme at 8.5 per cent is a move to augur the aggressive growth plans, with an annual target of Rs 6,000 crore worth new home loans disbursement."

The borrowers can avail offer at 140 cities and towns across India.

"We plan to grow our home loans business by 40-45 per cent this fiscal and increase our market share from the current 4 per cent to 10-15 per cent by 2014," Banga added.

He said every year company is in the process of adding 25-30 cities to its distribution network and, also increasing the sales strength by 25-30 per cent, at present its sales strength is of 1500.

State-run banks and HFCs to lend more for low-cost housing

The finance ministry will be pushing state-run banks and housing finance companies to set aside more funds for the low-cost housing projects.

The ministry of housing and urban poverty alleviation said that low subsidy demand from banks clearly indicates to the extremely bad lending to low-cost housing.


A finance ministry official told the ministry has asked the banks to submit details about their exposure towards low-cost housing and the reasons for slow progress.

However the government has set aside an interest subsidy of Rs 1,100 crore for four years up to 2012 for the low-cost housing scheme for the urban poor, but, as per government records there has been claim of only Rs 4 crore from banks.

An official working with ministry of housing said, “We’ve requested that all public sector banks should be asked to increase their lending towards the segment so that subsidy amount provided for the scheme is utilized.”

Government is also planning to ask the regional rural banks to lend to low-cost housing for this it will make these banks eligible for the interest subsidy on loans under the scheme.

National Housing Board (NHB) and HUDCO have been made the nodal agencies which will provide 5% interest subsidy on housing loan given to economically weaker sections and low income groups.

However government has instructed 17 state-run banks and six housing finance companies to provide these low-cost loans. On the other hand, bank say that the local authorities are directly responsible for low disbursals as the borrower is required to provide evidence to prove his eligibility for the subsidy.

Bank of Baroda official said, “The inordinate delays on their part is reflective in low credit off take.”

To solve the problem the government has decided to give the authority to the banks to decide on the eligibility of the borrower. NHB executive director RV Verma said, “It has been decided that banks on their own assessment can provide these certificates and disburse loans.”

Up till March 2012, government is planning to provide subsidy support to over 3 lakh low cost houses. “The scheme is a blend of achieving social needs while maintaining a profitable orientation for the banks. Banks will finally see its a win-win situation for them,” Mr Verma said and added that in states such as Andhra Pradesh, Tamil Naidu and Madhya Pradesh the scheme is successful.

Under this scheme banks can sanction a maximum of Rs 3 lakh to a borrower belonging to economically weaker category and Rs 5 lakh to a low income one. Moreover scheme provides a subsidy of 5% for a loan amount of Rs 1 lakh for the full tenure of the loan.

Special home loans still continue with banks

Recently, many banks have raised their BPLRs but teaser loans still continue to be provided by many banks and financial institutions. Along with soft interest rates, host of innovative schemes are being offered to attract customers, informed industry experts and bankers.

For instance, LIC Housing Finance has introduced variable EMI (equated monthly installment) product to target the young salaried class, who are planning to buy a house but cannot afford high EMI. The scheme offered by them would structure the repayments in such a way that EMIs remain low at the start of the loan and will increase as the loan period progresses. The scheme has been designed assuming that the repayment of capacity of the customer will increase as salaries increase.

The company is offering product at a floating interest rate of 8.75 per cent for loans up to Rs 1.5 crore.

RR Nair, managing director and chief executive officer of LIC Housing Finance points out, “This product is for the young salaried employees, who would like to own a big home but do not have the salary to match. There is a lot of scope to be innovative in the home loan market, as there are varied customers with a variety of needs.”


Punjab National Bank, a public sector lender is giving choice to the customers to extend even margin money payments over a period of time and is also offering home loans at a lower rate of interest.

Recently bank has launched a home loan festival bonanza, in which it has slashed interest rate to 8.50 per cent (fixed) on loans up to Rs 50 lakh for three years across all repayment tenures and has also waived off processing fees and documentation charges. Bank has also waived off prepayment charges.

Already HDFC and State Bank of India (SBI) are offering floated fixed/ floating rate products, under which fixed interest rate is offered for a specific period of time and then it will be reverted to floating rate of interest.

SBI has been doing good business in home loan segment as it is offering an invitation rate of 8 per cent, which is the lowest in the market.

LIC Housing Finance has also introduced a product in home loan segment called Advantage 5, in which it offers a fixed interest rate of 9.25 per cent for five years thereafter will be reverted to a floating rate.

More banks and home finance institutions are offering similar fixed-cum-floating rate products to attract customers.

Sumeet Vaid, chief executive officer of Financial Freedom, a financial planning company based in Mumbai says, “In a rising interest rate regime, it is beneficial for customers to get into a fixed loan scheme, so that the interest rate is protected for a short duration. Banks are looking at very aggressive strategies to win home loan customers.”

The factors that determine home loan amount eligibility

Many of us plan to take home loan but don’t know the factors that banks take into consideration for fixing loan amount.

1. Age: Borrowers age is the most important factor. If the borrower is working in public sector and is closer to the retirement then the loan amount will be less. The reason is, the number of working years will be relatively lesser and the EMIs will be higher. This will increase the burden on the borrower therefore banks will taken into account the age of the borrower while deciding the eligibility.
2. Income: The monthly disposable income is the most important factor for loan eligibility. Usually the EMI is to be set in accordance to a fixed percentage of the applicant’s disposable income which will enable the borrower to repay the loan installments comfortably. This reduces the chance of default.
3. Source of Income: Before sanctioning the loan banks check the source of income. The borrower has a secure job or steady and assured stream of income if he owns a business. In case the borrower is unemployed or does not have secure job then in spell of unemployment it would be difficult to keep up the EMI payments.
4. Securities: In case the borrower is not earning good salary but his financial background is strong this will also help him in getting a higher loan amount. If the borrower has other securities such as fixed deposits or good amount of insurance, this also helps in getting a higher amount of loan. If the borrower’s repayment record is good then also bank tends to offer a higher amount.

Banks don’t give joint home loan to friends, cousins, live-in couples

To increase home loan eligibility you can go for joint loan. But housing finance companies (HFCs) provide joint home loans to father-son duo or spouses, but don’t give to siblings, cousins, sisters, friends and live-in couples.

However LIC Housing Finance has a product in which brother-sister duo can jointly avail home loan by combining their incomes, subject to certain terms and conditions.

But joint home loan can be availed by two brothers, however there are certain conditions.

A senior official working with LIC Housing Finance said some of the HFC do accept such applications, but volume of the loan sanctioned might be low as high risk is involved in this.

The official said, the HFC has stringent internal norms for sanctioning such loans. In such cases the loan eligibility reduces by 10 per cent.

The official further said, “The residual income (income left after excluding monthly expenses and other costs) goes down when siblings avail a home loan. Thus, the loan eligibility too goes down.”

In case of father-son duo the joint home loan is sanctioned depending on the remaining tenure of service of the father if he is a salaried professional. Likewise two brothers can also avail a joint loan, if both of them are co-owners of the property.

Santosh Govardhan, chief credit officer with IDBI Home Finance, said, “Two brothers availing a joint home loan have to be working and residing in the same city. Also, the property has to be a minimum two bedroom-hall-kitchen.” He added, the terms and conditions have been made in such a way that very little room is left for default in repayment.

Bankers say in case of joint loan given to brother-sister duo, the chance of default is high because when sister gets married and moves away their joint income gets affected.

However some banks give loan to two cousins living in a joint family but it will depend on a case-to-case basis. Govardhan said, “If the profile of the customers is really good and if there is a genuine reason for purchasing a joint property, such a case can be considered as an exception.”

Moreover some banks and home finance companies sanction joint loans to a couple even when they are engaged. But the loan amount is disbursed only after the marriage certificate is produced.

Banks or housing finance company do not give joint home loan is not given to two sisters, an uncle and a nephew or a niece as the risk of default is apparently quite high in such cases.

A banker said, “There is an uncertainty of repayment when such a set of people avail the loan together. Hence, most banks shy away from extending loans to such customers.”

LIC Housing Finance too has stringent terms and conditions for a joint loan offered to a brother-sister duo. For instance, one of the conditions in such case is that the property has to be owned jointly by the applicants. Moreover, the tenure of the loan might be reduced on a case-to-case basis, based on the remaining term of service of the applicants.

LIC Housing Finance official informed, “If the company is giving concession on some terms and conditions, it tightens other parameters.”

However, the joint home loan has many benefits such as it increases loan eligibility, both applicants can avail income tax benefits under Section 80C of the IT Act for the principal repaid and under Section 24 for the interest repaid.

Indiabulls housing finance announced its home loan teaser rate at 8.25%

After two leading lenders SBI and HDFC, Indiabulls housing finance, a part of Indiabulls financial services announced 8.25% teaser rate home loan.

Under this scheme company is offering a home loan at concessional rate at 8.25%, "taking care of any future fluctuations in interest rates up to April 2012 and market rate-linked rates thereafter," the company said in a statement.


The new scheme will be available across 140 cities and towns.

Indiabulls Financial Services CEO Gagan Banga told that company has set a target of achieving 40 to 45 per cent growth in its home loans business by this fiscal, apart from increasing the market share to 7-8 per cent by 2014.

He said, "The introduction of this new concessional home loan scheme at 8.25 per cent is a move to augur aggressive growth plans, with an annual target of Rs 6,000 crore worth new home loans disbursement."

Earlier on July 2, mortgage leader HDFC had launched its teaser home loan rate at 8.25 per cent and the scheme will be till the end of August. SBI, a public sector lender was the first one to extend its teaser home loan rates at 8% for another three months till September.

From July 1 all the banks have moved to base rate system but SBI decided to extend its popular home loan and car loan schemes without changing the terms.

Banga said, for the meantime the company is planning to increase its sales force for home loans by about 25-30 per cent to meet its growing customer needs. He added, at present the sales growth stand by 1,500.