Interest rate war brewing up in the home loan segment amongst banks

This festival season, people can gain out of the interest rate war brewing up amongst the banks, in the home loan segment. Recently Development Credit Bank (DCB) and GIC Housing are offering home loans below the 8% level. DCB has recently entered the segment, is offering 7.95% for loans up to Rs 5 crore at fixed interest rate for the first year and floating rates from second year onwards.

Praveen Kutty, executive V-P and head, retail banking, DCB said, “While affordable housing is the buzzword these days, the market would get a further boost if attractive financing options are available”. While the Central Bank of India and Punjab National Bank on certain loan segments have waived off processing fees and documentation charges. On comparing rates one will find that there isn’t much difference between 7.95% and 8% home loans, thus bankers say that it’s mainly a psychological pricing to attract more borrowers.

According to analysts borrowers prefer to go for low interest bearing home loan accounts and that too offered by the nationalized banks over private banks. VS Reddy, MD, Lakshmi Vilas Bank pointed out, “While there has been demand in the affordable home loan segment (up to Rs 30 lakh), the activity in the upper bracket (loans above Rs 50 lakh) has mostly revolved around restructuring or takeover of such accounts by another bank”.

On the other hand private sector bankers caution borrowers that before signing on the dotted line they should check through the sub 8% schemes.

Renu Sud Karnad, joint MD, HDFC says, “Many of these 8% schemes are of short duration, between three months and one year. But for us, housing finance is the only product...unlike some of the other lenders for whom home loans maybe just one of their products”. The bank is offering a floating rate of 8.75% for loans up to Rs 15 lakh, 9% (Rs 15-50 lakh) and 9.5% for loans above Rs 50 lakh up to 20 years. Thus HDFC is expecting to increase its disbursal by at least 20% this year.

On the other hand borrowers say it is not easy to do such change over. IT professional R Ram who took a Rs 8 lakh home loan from a private bank at 12% is planning to change account to a nationalized bank for sometime now.

“I am half way through my EMI repayment and have been trying to shift my account for sometime now but it’s not happening. First, the bank with whom I have a home loan said I have to pay a hefty penalty and transfer fees. After I agreed to that, they are now insisting that they need clearance from head office in Mumbai. The bank is saying some more documentation needs to be completed and more procedures need to be followed. It is quite frustrating.”