Axis Bank offers 20-year fixed-rate home loan at 10.4%

Axis Bank Ltd, India's third largest private sector lender, today announced a reduction in its fixed rate home loan interest rate to 10.40 per cent, from 11.75 per cent, in a bid to tap the increased demand for homes from middle income households.

The new interest rate, which will be fixed for 20 years, will be available for loans up to Rs50 lakh in metros with property value of Rs65 lakh and is valid till March 2015.

The limited period offer is only for affordable housing segment for loan size of up to Rs50 lakh. The new offer is 25 bps, or 0.25 per cent, above Axis Bank's base rate (below which it cannot lend), currently pegged at 10.15 per cent.

The reduction in interest rate on fixed rate loan is also the first by any bank since the Reserve Bank of India (RBI) announced its monetary policy stance on 2 December, at which the central bank left policy rates unchanged but hinted at a likely rate cut in the first quarter of calendar year 2015.

''There is strong demand from customers to get a fixed rate home loan. We expect demand for this product from suburbs like Virar and Vasai near Mumbai, tier II cities in states like Gujarat and south India and rural India,'' said Jairam Sridharan, president of retail lending and payments, Axis Bank.

Home loans account for 53 per cent of Axis Bank's retail loan book of Rs.90,277 crore and Sridharan expects this to remain around 50 per cent for the rest of the year.

Retail loans with 27 per cent to 28 per cent growth have been the fastest growing segment for the bank so far this fiscal year, but home loans have grown just 11-12 per cent.

''This has been a slow year on home loans because big markets like Mumbai and surrounding areas and the national capital region have not grown because homes are not affordable and as borrowers are not confident that builders will finish construction in the given time frame,'' Sridharan said.

Existing borrowers who pay a floating rate can shift to a fixed rate by paying half a percentage point of the outstanding principal as a one-time fee, while the bank has fixed a 2 per cent pre-payment fee on this loan in case borrowers want to prepay their loans later.