| "Affordable" housing for all: Banks cut lending rates |
02 Jan 2017
|Following PM Narendra Modi's affordable housing announcement, home loan rates fell to their lowest in six years.
State Bank of India cut the effective rate from 9.10% to 8.6% and its one-year Marginal Cost of Lending Rate (MCLR) - the benchmark linked to home loans - from 8.9% to 8%.
SBI kept the spread above MCLR at 60 basis points against 20 basis points.
| Private banks also expected to lower rates |
|Home loans up to ₹75 lakh, earlier given by SBI at 9.1%, would now be given at 8.6%; 8.65% is the rate for other banks.
Punjab National Bank and Union Bank of India also cut rates while private banks are expected to do so.
The rate cut signals demonetization's benefits in the form of record-high deposits being shared with the poor and middle classes.
| PM Modi's affordable home loan scheme |
|The reduction in housing rates by several public banks would make available the affordable home loan scheme, announced by PM Narendra Modi, at 4% (or little higher) for those seeking loans of up to ₹9 lakh. The scheme's details are yet to be announced.|
| The reduction in MCLR indicates cheaper rates |
|Home loans are linked to one-year MCLR, the rates are locked-in for 12 months.
Older borrowers would enjoy the benefit of new rates only after the end of their one-year lock-in.
The EMIs of loans availed before Apr'16 would be linked to earlier benchmark; these borrowers need to enter into a fresh bank contract (by paying a fee) to get loans linked to MCLR.
| EMI cheque smaller than rent cheque? |
|Indiabulls Housing Finance Vice-Chairman & MD, Gagan Banga, said subsidized home loans would find many borrowers as EMI cheque would now be much smaller than the rent one. He added, "This is a tremendously positive announcement to realize the 'Housing for All' objective."|
| Government's schemes to impact lending and economy in Q1 FY18 |
|Other banks that lowered rates are State Bank of Travancore, IDBI Bank, and Indian Overseas Bank.
SBI said home loans offer an alternative to parking the funds in government bonds, which offer less than 7% return.
The interest subvention for affordable houses and small enterprises are expected to counter the slowdown post-demonetization.
The government's schemes would likely impact lending and economy in Q1 FY18.
| 45% of bank loans go only to 300 companies |
|IDFC Bank MD & CEO, Rajiv Lall, said 45% of bank loans go to 300 companies.
He stated, "Extreme concentration of bank credit on the top end of the corporate sector has begun to border on the ridiculous."
He added PM Modi's announcement would re-balance the situation by encouraging loans to small businesses as the framework (payment systems and bank accounts) is already prepared.
| Post-demonetization challenges would be history |
|Dewan Housing Finance Corporation Chairman & MD, Kapil Wadhawan, said: "From our perspective, this (Government's initiatives) is extremely positive and will help us further in penetrating into the segments we serve. With these announcements, the challenges that all faced following demonetization would clearly be history." |