SBI offers home loans at 9.1% under special festival scheme

State Bank of India (SBI) has cut home loan rates to as low as 9.1 per cent as part of a special festival scheme. Under the festival scheme, home loans for women (or loans with women as co-borrowers) will be available at 20 basis points above SBI's benchmark rate, which translates into 9.1 per cent. This is SBI's lowest home loan rate in six years.

The festival rates will be available for loans sanctioned in November and December 2016 and are disbursed in a month's time. For these loans, there will come without processing fees.

The rate cut comes on the back of a general interest rate reduction by banks, including SBI, in their benchmark rates. SBI had reduced its benchmark  rate by 15 basis points.

For all other borrowers, the new home loan rate applicable will be 9.15 per cent.

SBI estimates the equated monthly installment under the scheme to come down by Rs542 in case of a housing loan of Rs50 lakh.

EMIs for SBI's home loan rates are already down since March and with this new scheme, it would be the cheapest – lower by 20 basis points compared with the cheapest home loan rates of 9.3 per cent that HDFC Bank and ICICI Bank offer.

SBI's aggressive rate reduction for home loans comes in the wake of an extremely sluggish growth in new loans as banks laden with huge non-performing loans find no new avenues to lend and borrowers find the bargain hard.

The corporate loan books of most banks have shrunk as companies are shifting to the bond market for funds. The easy way for banks to increase lending is the retail segment.

Home loans have grown by 18 per cent as of mid-October in the current fiscal while overall credit grew at a meager 1.6 per cent and corporate loans registered a negative growth.

By lowering the lending rate in the fastest growing segment in the industry, SBI is aiming to increase its loan growth by grabbing market share from other lenders.

SBI's benchmark rate is the one-year Marginal Cost of Lending Rate (MCLR), which has been effective from April 2016. Earlier, loans were priced in relation to the older benchmark - the base rate. The MCLR is revised every month for new borrowers. But once a customer avails of a loan, he is locked into the MCLR for a year.

While lower home loan rates reduce SBI's margins, it helps the bank to utilise deposits that are otherwise idle.

On Tuesday, a few other state-owned lenders, which typically have a larger corporate portfolio than their peers in the private sector, announced cuts in the MCLR, including Punjab National Bank (PNB) and Dena Bank.

While PNB trimmed its MCLR by 5 basis points (bps) across tenures Dena Bank cut overnight rates and rates on one-month and one-year loans. Union Bank of India and State Bank of Bikaner and Jaipur (SBBJ) reduced the MCLR by 10 bps across tenures.

The one-year MCLR at PNB, effective Tuesday, is 9.25 per cent, while it is 9.40 per cent at Dena Bank, 9.30 per cent at Union Bank, and 9.45 per cent at SBBJ.