SBI offer sets rate war in home loans
Mumbai: By announcing that it will offer loans for Rs 2-10 lakh at 12.5 per cent — the lowest rate offered by any housing finance provider, big-brother State Bank of India (SBI) has taken the rate war in the home loans category to new heights. This is because, apart from the low rate, the interest on these loans is calculated on principal, which is reduced every month unlike other housing finance companies which calculate interest on an annually reducing basis.

The reduction in rates follows a 50 basis point reduction in SBI’s term prime lending rates (STPLR) to 11.5 per cent against which its housing finance rates are benchmarked. In a statement issued here on Saturday, SBI said that loans for upto Rs 2 lakh will be available at an effective rate of 11.5 per cent while loans for above Rs 10 lakh are available at an effective rate of 12.75 per cent. The bank had reduced its STPLR to 11.5 per cent on April 3 following the one percentage point reduction in the Bank Rate and Cash Reserve Ratio by RBI.

SBI’s housing finance rates are benchmarked at 100 basis points over its STPLR for loans between Rs 2-10 lakh and 125 basis points above STPLR for loans over Rs 10 lakh. This implies that the rates will change whenever SBI revises its STPLR. ICICI offers loans at 12.75 per cent while HDFC’s rates are a shade higher at 13 per cent.
Although HDFC offers a lower rate of interest on floating rate loans at 12.50 per cent, its rates are still higher compared to SBI considering the fact that SBI calculates interest on a monthly reducing balance.

In the last one year the bank has increased its portfolio by Rs 1,000 crore and is now looking at doubling its growth during the current financial year.
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