Banks Plan Loan Rate Solidify To Cash In On Festival Demand
Several banks which were earlier planning to raise home loan rates in October are
now considering deferring such plans, keeping in mind the holiday season ahead when demand for such loans is expected to soar.
After the Reserve Bank of India revised its policy rates in mid-September, several banks had said they would consider increasing their lending rates in October when the base rate, on which loans are priced, comes up for review.
However, it is during festivals like Dussehra and Diwali in October and November that most banks see a huge demand in
personal loans,
car loans and
home loans, as this is considered to be an auspicious time to buy homes or other assets. In fact, every year during this period, most banks offer special schemes featuring discounts to woo customers. Discounts are offered in the form of a waiver in processing fees and lower rates for a limited period.
Banks may not hike home rates immediately since sales are expected to pick up soon after the Pitr Paksha is over, said Oriental Bank of Commerce CMD TY Prabhu. During Pitr Paksha, which is related to rites performed by Hindus, many people consider it inauspicious and choose not to take any major investment decisions.
Although the festival season is closer, banks could be under pressure to raise lending rates in October as their cost of funds have gone up 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. Mr Prabhu said if banks are under pressure to raise lending rates, they may raise the base rate but simultaneously narrow the spread between the base rate and home loan rates. Banks have pegged their base rate in the range of 7.50% to 8%.
The special home loan scheme of Indias largest bank, State Bank of India, is due to close on September 30, but its officials say the bank is most likely to extend the scheme for another quarter to woo customers in the festive season. SBI offers a fixed rate of interest of 8% in the first year, 9% in the second and third year, after which the loan is priced on a floating rate basis.
Punjab National Bank, the second-largest bank, too has come out with a festive offer on home loans marked by a fixed rate of interest of 8.5% for the first three years and subsequently linked to prevailing floating rates.
Last week, Corporation Bank introduced a special home loan and vehicle loan scheme, known as grand festival offer, wherein for loans up to '30 lakh, the lender will offer it at base rate of 7.75% in the first year and 50 bps above the base rate for second and 8.25 % in the third year. The bank will charge 0.25% more if the loan is above '30 lakh. 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 '1,000 crore, said SM Swati, general manager in charge of retail lending at Corporation Bank.
by: Dealfor Loans
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