August 19, 2009. Chairman of the State Bank of India, O. P. Bhatt, indicated that home loan and auto loan seekers can expect a cut in interest rates in the next three to six months. This is according to an article in The Hindu.

According to Mr. Bhatt, rates may remain stable and even decline further in the three to six month period given the positive signs in the Indian economy. He did not project rates beyond six months given that economic conditions are dynamic and it’s difficult to predict interest rates on a longer term basis.

SBI has cut rates and offered incentives to new home loan and auto loan borrowers in the past few months to boost the retail borrowing segment.

Most banks in India offer both floating rate home loans and fixed rate home loans. Floating rate means that the interest rate on the housing loan can ‘float’ or change based on certain criteria while fixed rate means that the interest rate will not change during the entire loan term.

However, borrowers will be well advised to read the fine print of their home loan contract before signing up for a fixed rate home loan. Many banks have now added a interest rate reset clause to their fixed rate home loans allowing the banks to change the interest rates after a few years. In other words, a fixed rate home loan really does not imply that the interest rates will be fixed for the entire duration of your loan term. Your Equated Monthly Installment (EMI) that you may have budgeted for when purchasing your house with a fixed rate loan may actually go up in the future.

State Bank of India, India’s largest bank, has a reset clause which states that fixed rate home loans are subject to a interest rate reset at the end of every two years on the basis of fixed interest rates prevailing at that time. In other words, if you take the home loan today, you will have your monthly payments fixed only for the next 2 years. It’s possible that the interest rate on your loan will go up at the end of 2 years making your monthly payments higher.

United Bank of India, another public sector bank, has a similar reset clause on fixed rate home loans after every two years. Indian Bank also has a reset clause after every 2 years. There are several other banks with reset clauses on their fixed rate home loans.

Why do these banks call them fixed rate when the rates can be changed at the sole discretion of the banks after a set period? It would be better for banks to change the name of these loans to clearly reflect the adjustable nature of the interest rates. A borrower who is busy with a lot of things when purchasing a home should not have to read the fine print to figure out that their loan interest rates and monthly payments can go up after a few years.

Your fixed rate home loan contract will also typically have a force majeure clause. Force Majeure (French for “superior force”), is a common clause in contracts which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties, such as a war, strike, riot, crime, or an event described by the legal term “act of God” (e.g., flooding, earthquake, volcano), prevents one or both parties from fulfilling their obligations under the contract. This clause again gives the right for banks to alter the rate of interest due to unforeseen or extraordinary changes in financial market conditions during the period of the loans. There is not much you can do about the force majeure clause since it’s a standard clause in most contracts.

It’s typical for banks to raise the fixed rates for new applicants when the Bank’s Prime Lending Rate (BPLR) that governs the floating rates goes up. Existing fixed rate home loan borrowers will see their interest rates go up under such circumstances at their next reset period.

It’s not clear if banks give the same priority to reducing fixed home loan interest rates when the BPLR falls. You may be stuck with your existing interest rate in such a situation. Check with your banks and read the fine print before taking a final decision on your home loan.

Home loan interest rates have been reduced by 0.25% by United Bank of India, a public sector bank, effective from April 1. The bank has cut its Benchmark Prime Lending Rate by 0.25% and has passed on the cut to home loan borrowers. The cut in home loan rates applies only to floating rate home loans.

United Bank of India is offering a interest rate of 8.25% fixed for first 5 years for a home loan of upto Rs. 5 lakhs and a interest rate of 9.00% fixed for first 5 years for a loan between Rs. 5 lakhs and Rs. 20 lakhs. This rate of interest shall be reset after 5 years and the borrower will then have the option for going for a fixed rate or floating rate of interest. These interest rates are offered under a special scheme upto 30-06-2009 and are offered for the purpose of construction or outright purchase of new/old house/flat.

For home loans between Rs. 20 lakhs and Rs. 30 lakhs and a loan duration of upto 5 years, the interest rate is 9.25%. For the same loan amount, the interest rate is 9.75% for loans between 5 and 10 years, 10% for loan period of between 10 and 15 years and 10.25% for loans between 15 and 20 years. These rates are under the floating rate category.

For home loans above Rs. 30 lakhs, the bank is offering a interest rate of 9.75% for a loan duration of upto 5 years, 10.25% for loan duration of between 5 and 10 years, 10.50% for loans of between 10 and 15 years and 10.75% for loans over 15 years and under 20 years. These rates are under the floating rate category.

There is no change in the rates offered under the fixed rate home loan category.

Latest home loan interest rates across all major banks and other institutions can be compared at Ratekhoj.

December 11, 2008, Ratekhoj.com. A number of press reports indicate that interest rates of home loans in India will be cut in the near future by state-owned public sector banks. Along with the reduction in interest rates, a number of other incentives such as cuts in processing fees and margin requirements are also expected to give borrowers loans on simpler terms. Borrowers looking for home loans upto Rs. 20 lacs are expected to benefit from this interest rate reductions as well as other concessions. It’s not clear yet if borrowers looking for loans over Rs. 20 lacs will see any benefits as a result of the package being discussed.

As reported in The Hindu, public sector banks may include concessions on margin requirements, waiving of processing fees on loans and changes in pre-payment clauses on loans:

The move to provide relief for home loan borrowers comes in the wake of the Government’s recent fiscal stimulus booster in which it promised that public sector banks (PSBs) would shortly announce a package for two categories – up to Rs 5 lakh, and between Rs 5 lakh and Rs 20 lakh.

Borrowers are now expecting at least 200-300 basis point cut in interest rates as relief under the package. They want interest rates on fixed rate home loans to come down to between 7 and 9 per cent say for a 10-year term period.

The IBA Chairman said that bankers were still discussing the modalities on how the package should be structured and that they had not come to any definite conclusion. Besides interest rate reduction, the public sector banks were also looking to include concession on margin requirements, waiving of processing fee for loans and changes in pre-payment clause in the package, Mr Narayanasami said.

Indian Express reports the story as follows:

State-owned banks are set to lower interest rates on home loans of up to Rs 20 lakh by 200-300 basis points tomorrow. After a meeting of the Indian Banks Association today, bankers said a package would be announced tomorrow. At present, home loans up to Rs 20 lakh carry an interest rate of 11.5 per cent.

 While private and foreign banks continue to charge higher interest rates without passing on the benefits of monetary measures including sharp rate cuts over the last six months, state-owned banks agreed to cut processing charges on home loans, ease pre-payment norms and relax the margin requirement. The interest rate on loans up to Rs 5 lakh could drop to about 8 per cent and that on Rs 5-20 lakhs could be reduced to 9 per cent, bankers said.

The fiscal stimulus package announced by the Government on Sunday had specifically called banks to announce special packages for home loans up to Rs 5 lakh and between Rs 5 lakh and Rs 20 lakh. “Some package will be formalised by tomorrow,” Indian Banks Association chairman T S Narayanasamy told reporters in Delhi after a meeting of the heads of state-owned banks.

As reported in the Hindustan Times:

Public-sector banks are set to bring down their home-loan interest rates to 7.5 per cent for loans of up to Rs 5 lakh and 8.5 per cent for loans between Rs 5 lakh and Rs 20 lakh.

Only fresh loans are eligible for the lower rates, but existing borrowers can switch to cheaper loans by making a one-time penalty payment. The government may bear some fiscal burden in the process.

A meeting of key banks, the Indian Banks Association and Finance Ministry officials hammered out a package on Thursday to boost affordable housing and revive a sluggish home-building sector. A formal announcement is expected within the next couple of days, government and banking sources told Hindustan Times.

Housing loan interest rates comparison shown below indicates that banks are currently are offering interest rates over 9.00% for floating rate home loans for a term of 10 years for loan amount below Rs. 20 lacs. A reduction of these rates to between 7 and 9 percent can be a significant boost to the housing market in India and help borrowers significantly:

Lender	Floating Rate	Duration	Additional Info	EMI for 10 yrs loan(assuming loan of Rs. 1 lakh)
Bank Of India	9.00%	5-10 years	Rate applicable for loan amounts upto Rs. 30 lakhs.	Rs. 1,266.76
Indian Bank	9.25%	5-10 years	Rate applicable for loan amounts upto Rs. 20 lakhs.	Rs. 1,280.33
Bank Of Baroda	9.50%	5-15 years	Rate applicable for loan amounts upto Rs. 30 lakhs.	Rs. 1,293.98
Central Bank Of India	9.50%	5-10 years	Rate applicable for loan amounts upto Rs. 30 lakhs.	Rs. 1,293.98
Bank Of India	9.75%	5-10 years	Rate applicable for loan amounts between Rs. 30 and 50 lakhs.	Rs. 1,307.70
Canara Bank	9.75%	5-10 years	Rate applicable for loan amounts upto Rs. 30 lakhs.	Rs. 1,307.70
Indian Bank	9.75%	5-10 years	Rate applicable for loan amounts between Rs. 20 and 30 lakhs.	Rs. 1,307.70
Indian Overseas Bank	9.75%	5-10 years	Rate applicable for loan amounts upto Rs. 30 lakhs.	Rs. 1,307.70
State Bank Of India	10.00%	5-15 years	Rate applicable for loan amounts upto Rs. 30 lakhs.	Rs. 1,321.51
Allahabad Bank	10.00%	5-10 years	Rate applicable for loan amounts upto Rs. 20 lakhs.	Rs. 1,321.51
Bank Of Maharashtra	10.00%	5-10 years	Rate applicable for loan amounts upto Rs. 30 lakhs.	Rs. 1,321.51
Corporation Bank	10.00%	5-15 years	Rate applicable for loan amounts upto Rs. 30 lakhs.	Rs. 1,321.51
Oriental Bank Of Commerce	10.00%	upto 10 years	Rate applicable for loan amounts upto Rs. 20 lakhs.	Rs. 1,321.51
Punjab National Bank	10.00%	5-10 years	Rate applicable for loan amounts upto Rs. 20 lakhs.	Rs. 1,321.51
State Bank of Bikaner and Jaipur	10.00%	5-15 years	Rate applicable for loan amounts upto Rs. 30 lakhs.	Rs. 1,321.51

 

People who have existing home loans can also take advantage of these new lower interest rates but they may have to consider pre-payment clauses on their loans. Pre-payment clauses on home loans can sometimes run as high as 2 percent of the loan amount. Concessions being discussed such as no or lower processing fees in this package however can soften the blow for existing home loan borrowers considering changing their bank to take advantage of the lower interest rates.

December 10, 2008, Ratekhoj.com. Indian Overseas Bank, a public sector bank in India, has modified its home loan rates in the fixed rate category. Interest rates for amounts under Rs. 30 lacs for a loan duration of upto 5 years are now 10.75% up from 10.00% earlier. Interest rates for loan amounts under Rs. 30 lacs and a loan duration of more than 5 years and upto 10 years is now 11.25% down from 12.50% earlier. Interest rates for amounts over Rs. 30 lacs and a duration of upto 5 years is now 13.25% and rates for a duration of 5 years upto 10 years is 13.75% for amounts over Rs. 30 lacs. Indian Overseas Bank does not offer fixed rate home loans for durations over 10 years.

Indian Overseas Bank has not made any changes to interest rates for floating rate home loans.

December 06, 2008, Ratekhoj.com. Measures taken by the Reserve Bank of India to boost economic growth are likely to result in home loans, car loans, personal loans and other loans becoming cheaper. As announced in a press release by the RBI:

The Reserve Bank has reviewed the evolving macroeconomic and monetary/liquidity conditions and has decided to take the following further measures:

• It has been decided to reduce the repo rate under the LAF by 100 basis points from 7.5 per cent to 6.5 per cent and the reverse repo rate by 100 basis points from 6.0 per cent to 5.0 per cent, effective December 8, 2008.
• …
• We are working on a similar refinance facility for the National Housing Bank (NHB) of an amount of Rs 4, 000 crore. We will announce the details after consideration of the proposal by the Central Board of the Reserve Bank which is meeting next week.
• …
• It has been decided that loans granted by banks to Housing Finance Companies (HFCs) for on-lending to individuals for purchase/construction of dwelling units may be classified under priority sector, provided the housing loans granted by HFCs do not exceed Rs.20 lakh per dwelling unit per family. However, the eligibility under this measure will be restricted to five per cent of the individual bank’s total priority sector lending. This special dispensation will apply to loans granted by banks to HFCs up to March 31, 2010.

Repo rate is the rate at which banks borrow money from RBI and the reverse repo rate is the rate at which banks park their short-term excess liquidity with the RBI. A reduction in the repo rate as announced by RBI above will help banks to get money at a cheaper rate. It is expected that this will be passed on to consumers in the form of cheaper housing, car and other loans to stimulate economic growth. As reported in The Hindu, the RBI Governor D Subbaro expects cuts in both lending as well as fixed deposit rates:

Giving a clear signal to banks to cut the interest rates, the Reserve Bank of India on Saturday reduced the short-term indicative rates — the repo rate and the reverse report rate by 100 basis points each to 6.5 per cent and 5 per cent — with effect from December 8.

This is likely to result in a further cut in interest rates of housing loans and other consumer and personal loans by banks.

…

“The cumulative impact of the measures in Saturday’s package, together with earlier measures, should be to step up demand and arrest the growth moderation. In particular, the reduction in the repo and reverse repo rates should result in a reduction in the marginal cost of funds to banks and enable them to improve the flow of credit to productive sectors of the economy on viable terms,” RBI Governor D. Subbarao said here while announcing a slew of measures to stimulate the economy.

“Our expectation is that banks will respond to the measures today by lowering lending and deposit rates,” the RBI Governor added.

Earlier, the RBI signalled a lowering of the interest rate structure by reducing its key policy repo rate by 150 basis points from 9 per cent as on October 19 to 7.5 per cent on November 3.

Taking the signal from the repo rate cut, the top five public sector banks have reduced their benchmark prime lending rates (BPLR) from 13.75–14 per cent as on October 1 to 13– 13.50 per cent now.

The central bank expects more banks to reduce rates following the latest measures.

As reported in Indian Express:

The Reserve Bank of India (RBI) sent a strong signal to banks to lower interest rates on all types of borrowings by cutting the repo and reserve repo rates by 100 basis points. The cuts are part of a mega economic stimulus package to make borrowing more affordable.

 …

In another measure that will result in lower home loans, the RBI has decided that loans granted by banks to housing finance companies (HFCs) for on-lending to individuals may be classified under the priority sector, provided the loans granted by HFCs do not exceed Rs 20 lakh per dwelling unit per family. The priority sector status will enable banks to reduce interest rates on such loans significantly.

The RBI had cut the repo rate from 9 per cent to 7.5 per cent in October-November as a signal to commercial banks to bring down rates, but not many private banks did that. This time, RBI Governor D. Subbarao, while announcing the cut in rates in Mumbai on Saturday, said in no uncertain terms that commercial banks “need to get the signal”.  

“We hope that commercial banks (will) act accordingly. It is a matter of time before banks take a decision on interest rates on home loans. Monetary transmission takes time. However, as there is adequate liquidity in the system now and the demand for money is also falling, interest rates will also move down,” Subbarao said.

On Friday, ICICI Bank reduced its interest rate for home loans of Rs 20 lakh and below by 1.50 per cent to 11.50 per cent. Bankers said that with a comfortable liquidity position and fall in inflation, interest rates would now fall across the board. 

As reported in Business Standard:

Housing finance companies (HFCs) are contemplating a cut in their prime lending rates (PLRs) following the latest measures of the Reserve Bank of India (RBI) to stimulate the economy.

…

“Naturally, we would reduce our prime lending rates as we are expecting an instant fund flow at a cheaper rate, subsequent to the policy, which would lower our cost of funds,” said LIC Housing Finance Director and CEO R R Nair.

 It’s likely that there will be cuts in home loan and other loan rates in the near term in response to RBI’s measures. Therefore, people contemplating a home purchase in the near future can expect benefits from these measures.

 

 

November 9, 2008, Ratekhoj.com. IDBI Bank, a public sector bank in India, has announced in a press release that it is cutting its Bank Prime Lending Rate (BPLR) from 14.25% to 13.50% with effect from November 08, 2008. The bank announced that this reduction in BPLR will reduce its housing and education loan rates effective immediately.

This reduction in BPLR and loan rates by IDBI joins a growing list of public and private sector banks that have reduced their lending rates recently. These banks include Allahabad Bank, Bank of Baroda, Bank of India, Central Bank of India, Dena Bank, Punjab National Bank, State Bank of India, State Bank of Travancore, United Bank of India and Union Bank of India. Loans including home loans, car loans and educational loans are expected to become cheaper as we result of these cuts.

The cuts in the BPLR are a result of the Reserve Bank of India cutting its cash reserve ratio (CRR) and repo rates. These moves aimed at increasing liquidity in the credit markets and loosening the credit for borrowers has had the desired effect with both public and private sector banks cutting their lending rates.

These cuts are a boon to existing and new home loan borrowers in India. Home loans linked to a bank’s prime lending rates (typically floating rate home loans) will go down as a result of these cuts.

November 7, 2008, Ratekhoj.com. Dena Bank, a public sector bank in India, has announced in a press release that it is cutting its Bank Prime Lending Rate (BPLR) from 14.25% to 13.50% with effect from November 10, 2008. This is expected to trigger a reduction in interest rates on loans linked to the BPLR such as floating rate home loans, car loans etc.

November 7, 2008, Ratekhoj.com. Central Bank of India, a public sector bank in India, has announced in a press release that it has reduced its housing loan interest rates by 0.5% with effect from November 10, 2008.

Interest rates on housing loans up to Rs.30.00 lacs stands reduced from 9.50% to 9.00% for loans up to 5 years; from 10.00% to 9.50% for over 5 years to 10 years and from 10.50% to 10.00% for loans repayable in 10 years & above.
 
For loans of above Rs.30 lacs, the rates stands reduced from 10.75% to 10.25% up to 5 years; from 11.25% to 10.75% for over 5 years up to 10 years; and from 11.75% to 11.25% on loans repayable in 10 years & above. 
 
Interest rates on loans under fixed category remain unchanged.

November 6, 2008, Ratekhoj.com. United Bank of India, a public sector bank in India, has announced in a press release that it has decided to pass on the benefits of 25 bps (0.25%) cut in lending rate to all advances linked with PLR with effect from 3rd November, 2008. This will be applicable to Education loans, Housing Loans, Car Loans, SMEs and all other loans.

The reduced lending rate will be applicable for existing Loan Accounts also.

The bank also announded that further cut in the rate of interest on advances will be considered commensurate with decrease in the rate of deposits in the next week.

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