Banks and real estate finance companies compete for home buyers with interest rates on home loans worth more than 14 billion rupees. With the State Bank of India, HDFC, and Kotak Mahindra Bank cutting mortgage rates to the lowest level in nearly 15 years, other lenders are preparing to join the race.
On March 1, Kotak Mahindra Bank lowered its mortgage rate another 10 basis points to 6.65% per year, the lowest in the mortgage market. He said interest rates are tied to borrowers’ creditworthiness and loan-to-value (LTV). Rates apply to both paid and independent customer segments.
On the same day, SBI offered interest concessions of up to 70 basis points with interest rates starting at 6.70% (limited offer as of March 31, 2021). Two days later, HDFC cut mortgage rates 5 basis points to 6.75%.
SBI also grants a 100% waiver of processing fees. The interest rate award is based on the loan amount and the borrower’s CIBIL score. The borrower can request an additional 5 basis point grant of interest from home using the YONO application. Borrowers receive a special 5 basis point license. “The reduced rates are one of the best mortgage rates you could ask for,” said Saloni Narayan, DMD, SBI.
According to the RBI, mortgage loan growth slowed moderately in March 2020, which lasted through 2020-2021 due to the pandemic. From 17.5% in January 2020, mortgage loan growth slowed to 7.7% in January 2021. Banks have recognized that mortgage loans are safe bets in the current scenario, as the risk of non-compliance is minimal. Gross non-performing assets at SBI are only 0.67%.
SBI-run public sector banks, which previously focused on large corporate loans, are now targeting home loan customers. Real estate finance companies like HDFC and LIC Housing are also aggressively setting their prices. Competition is reflected in falling interest rates at a time when the real estate industry is recovering.
“This is actually the best time to buy a home,” said Ambuj Chandna, president of Consumer Staples at Kotak Mahindra Bank, when he cut rates earlier this week.
“With mortgage rates at their lowest in 15 years and house prices still low, now may be the perfect time to get a mortgage. This could be the lowest possible EMI in the near future. Bond yields are increasing. We don’t know where interest rates are going, ”said an official from a nationalized bank.
Banks expect the ongoing economic recovery to lead to increased home purchases. After reducing the pension rate by 40 basis points to 4% in May policy, the RBI kept rates unchanged. On average, SBI accepts about 1,000 mortgage clients every day. “Despite a massive drop in real estate triggered by pandemic foreclosure, real estate has seen unprecedented growth in the home loan industry. SBI experienced mortgage loan growth in December 2020 with the highest increases, penalties, payments, and growth ever seen by the bank, ”said Dinesh Khara, President of SBI.
The biggest draw for lenders is that home loans are virtually risk-free. Unlike personal loans, home loans are collateral – the house itself. In the event of bankruptcy, banks can sell assets sixteen and at auction. Also, banks focus heavily on salary grades and liberal professions as timely payment is guaranteed. Processing home loan withdrawals is easier, too.
SBI’s home loan portfolio has now passed the Rs-5-lakh-crore mark, giving the bank a one-third market share in the segment. Other PSU banks are also increasing their presence in the segment. By contrast, bankers generally were reluctant to lend to businesses due to asset stress in large industries, with the problem compounded by the pandemic.
Mortgage rates have been the lowest in 15 years. The RBI is also unlikely to decide to lower the repurchase rate further in the near future if bond yields rise. Bankers have already hinted that interest rates have bottomed out.
The latest mortgage rate cuts announced by Kotak Mahindra and SBI are only valid until March 31. A further reduction may have an impact on banks’ margins, as interest rates for one-year term deposits are now 4.9% (SBI interest rate). Another decrease in mortgage rates will lead to a further decrease in deposit rates, which is unlikely. However, customers can expect jumps such as waived processing fees and reduced fees during certain one- or two-month periods.