SBI’s interest scheme to trigger home loans runs into a cautious market | india | Hindustan Times
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SBI’s interest scheme to trigger home loans runs into a cautious market

india Updated: Feb 22, 2009 20:25 IST
Jaidev Majumdar
Jaidev Majumdar
Hindustan Times
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Home loan borrowers in the eastern metropolis may have a reason to smile: the country’s largest lender, the State Bank of India, has introduced an interest subvention scheme that hopes to trigger sales, (and not prices) in the badly-bruised real estate sector.

The scheme is a special arrangement between SBI and a few builders, wherein the interest component of a home-loan would be borne by the builder, until the project is complete. In effect, it would mean that buyers of under-construction homes would not have to shell out the interest on their EMI until they get physical possession of the home.

The SBI move is seen as an effort to prop up sales in the real estate sector, where builders are grappling with low sales volumes. Industry veterans say it could provide a much needed fillip to the ailing sector. A highly placed official of SBI’s Bengal circle (comprising of West Bengal, Sikkim and the Andaman & Nicobar islands), says that so far, the bank has roped in three reputed builders — Ambuja Realty, Calcutta Riverside and Eden City.

“We are sure that more builders will join us soon. We are getting a lot of queries but for the time being we have decided that this arrangement will be extended to those builders who will complete their project in the next 18 months,” the SBI official said.

Will the scheme trigger a price hike? The Confederation of Real Estate Developers Association of India (Credai) claims it will not. Credai Bengal president Pradip Chopra says the association is happy as the scheme would prop up sales and more builders would sign up. “We are happy as long sales will happen,” Chopra, who also runs Sherwood Estates, says.

New home seekers, however, prefer caution. Deb Ghosh, a prospective home loan seeker from north Kolkata, says: “The only worry is whether builders will charge me more on the rack rate since they will certainly not pay the interest from their own pocket...”

Industry experts point out other downsides. For instance, builders who bear interest burden would not be likely to offer any cash discounts to customers, which they might have otherwise done.

“For banks, there is zero hassle since they are already flush with funds and they are getting the interest no matter who pays it,” says a builder, who did not wish to be quoted.