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PSU banks make home loans a little sweeter

Want to buy your dream home but deterred by high home loan rates? Your wait for a sweeter deal may have ended. You can now take cheaper home loans from public sector banks, Sachin Kumar reports. How your monthly outgo may turn cheaper?

india Updated: Sep 04, 2012 01:39 IST
Sachin Kumar
Sachin Kumar

Want to buy your dream home but deterred by high home loan rates? Your wait for a sweeter deal may have ended. You can now take cheaper home loans from public sector banks such as the State Bank of India (SBI), Syndicate Bank, Indian Overseas Bank and Union Bank of India.

Following its peers, state-run Punjab National Bank also announced a reduction in its interest rate on housing loans by 25 basis points (100 basis points is 1 percentage point) across the board, on Monday.

At present, a customer can take a 15-year floating rate loan of Rs 20 lakh from SBI at an interest rate of 10.25% while a similar one from ICICI Bank would cost you 10.50%. A month ago, both banks were quoting 10.50%.

Apparently acting under the finance ministry's instructions, state-run banks now are charging 0.25 percentage points lower than private counterparts. http://www.hindustantimes.com/Images/Popup/2012/9/04_09_12-buss21c.jpg

Syndicate Bank, Indian Overseas Bank and Union Bank are offering 15-year Rs 20-lakh floating rate home loans at 10.50%, while Axis Bank and Kotak Mahindra Bank are charging 10.75% for Rs 25-lakh floating rate home loans with the same tenure.

In simple terms, it costs about Rs 600 less per month on a 15-year loan at the lowest rates in terms of equated monthly installments (EMIs).

Pratyush Sharma, a mid-level manager at a financial service firm, is looking at raising a home loan for an upcoming apartment along the Greater Noida Expressway.

"The rate reduction is definitely a deciding factor for me in approaching a public sector bank since any interest relief on such a big-ticket expenditure adds up to huge savings in the long term," he said.

While real estate prices matter most in home purchases, an interest can be a big secondary factor, he added.

Last month, the finance ministry issued a directive to banks to cut interest rates.

Earlier, in July, the Reserve Bank of India (RBI) announced a cut of one percentage point in the Statutory Liquidity Ratio (SLR) - the proportion of deposits that banks must invest in government bonds.

PSU banks have taken advantage of the increased cash flow to make loans cheaper.

"Our home loan rates have become more competitive and we will aggressively look to acquire home loan customers of other banks as there is no prepayment penalty now," said Vara Prasad, general manager at Union Bank of India.

Private banks feel that their business will not be impacted by state-run banks' rate cut.

"We have been seeing a consistently strong demand for Axis Bank home loans in the last few weeks," said Jairam Sridharan, head, consumer lending and payments, Axis Bank.

"ICICI Bank home loan rates are highly competitive," said a spokesperson from ICICI Bank.

While banks slug it out, experts suggest that an individuals should choose a bank based on the size of the loan. "If someone needs a big loan they can go to a private sector bank, and if the loan amount is small then a PSU works well," said Vipul Patel, director, Home Loan Advisors.