PSU banks score home run with cheaper loans

MUMBAI: A clutch of public sector banks and lending institutions has slashed home loan rates to multi-decadal lows raising the prospect of a full-blown rate war when other banks jump into the fray. LIC Housing Finance on Thursday marginally pipped State Bank of India by with its home loan rate at a record low of 6.90%. SBI is offering home loans starting from 6.95%. Rates offered by some large PSU banks are now close to multi-decade lows of 6.7% to 7.10%. This is likely to exert pressure on private sector banks and home finance companies (HFCs) to follow suit, raising the possibility of a rate war.While Union Bank of India is offering the lowest floating interest rates at 6.7%, Bank of Baroda, Bank of India and Central Bank of India are a close second offering home loans at 6.85% interest. "Home loan interest rates are at an all-time low for the company, thereby resulting in low EMI payment, attractive price points and affordable EMI will aid in addressing the demand side for buying homes," said Siddhartha Mohanty, MD of LIC Housing Finance. "There is no dearth of liquidity, what is lacking is consumption demand and through this product we are trying to create that."These low rates are being offered to customers with excellent credit scores of 700 and above. Others are charged a risk premium which could be as high as 50-60 basis points. "We have already demonstrated full transmission of rates under the EBLR (External Benchmark Lending Rate) regime. We have also moved the MCLR benchmark for our existing borrowers to six months. Since we are in a falling interest rate cycle this will benefit our borrowers," J Swaminathan, DMD-Finance, SBI.Cautious switch to mortgage lendingRisk aversion in the system is also leading to banks focussing on mortgage lending segment."They way Covid impact is playing out we are remaining cautious, we are moving the business towards secured side which includes home loans and loan against property (LAP)," said Pralay Mondal, head of retail business at Axis Bank.Meanwhile, borrowers are now also opting to migrate their high interest loans from non-banking financial companies (NBFCs) to public sector lenders where loans and refinancing options are much cheaper. "Lot of existing loans of NBFCs who are offering higher interest rates are seeing their customers migrate to public sector banks where the rates have fallen drastically in the last six months," said Pankaj Bansal, vice president and head, BankBazaar.Bansal added that cheaper cost of funds for PSU banks has given them competitive advantage over their private peers and non-bank lenders. However, he added that private lenders with huge balance sheets may still consolidate rates to gain share in the upcoming months when demand also improves.Mortgage loans have grown at a tepid pace of 12.9% year-on-year and have contracted by a percent in the last six months of the calendar year, RBI data shows.

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