Latest Property News on 'Home Loans'

Banks ask RBI to Clarify Pricing of Old Home Loans

Banks have sought clarity from RBI on pricing of old home loans once the new ‘base rate’ regime sets in. Loan agreements, stretching for 15-20 years, have no provision for replacing the prime lending rate (or PLR) — the anchor interest rate to which the floating rates are linked. However, RBI has told banks to start benchmarking loans to a ‘base rate’ instead of the PLR from April 2010. The base rate is to be calculated on a cost-based formula and would be lower than the PLR, while banks are free to charge a risk spread over the base rate they cannot lend below the base rate.

Significantly, RBI has directed banks that at the time of loan renewals or resetting interest charges, banks should take the ‘base rate’ as the anchor rate. Since home loan agreements, like other loan deeds, are legal documents, bankers fear that many retail borrowers will resist a switchover from PLR to ‘base rate’ and signing on a new agreement. Bankers will also have to grapple with the fact there is no renewal date in case of home loans and existing loan agreements are for the entire tenure of the loan. Secondly, since the base rate is a floor rate, there is a possibility that interest rates on some home loans may have to be hiked if the base rate of the bank is higher than existing loan rates. Read More »

Teaser Home Loan Rates Fail to Attract Buyers

Banks’ teaser rate offers for home loans have failed to attract new borrowers. These schemes offer a low fixed interest rate for the first few years and a floating rate after that. Latest data released by the Reserve Bank of India (RBI) show that during the 12 months up to November 20, 2009, flow of housing loans went up by 7.3 per cent, or Rs 19,820 crore. In contrast, growth in non-food credit was 10.4 per cent. Data from rating agency Icra shows similar trends. Between the end of March and the end of December 2009, the home loan portfolio of banks and housing finance companies grew 8.7 per cent to Rs 4,13,700 crore (see table). According to RBI data, between the end of March and December, bank credit grew 8.8 per cent.

State Bank of India was the first to launch the scheme in February. SBI’s home loan portfolio grew 24.43 per cent to Rs 67,268 crore at the end of December compared with Rs 54,063 crore in March. Union Bank of India, which closed its offer yesterday, disbursed around Rs 3,000 crore under the scheme, said a bank executive. In a report, Icra said disbursements had picked up in the second quarter of 2009-10, but higher prepayments led to lower portfolio build-up (only 5 per cent over June 2009 and 14 per cent year-on-year). “The trend could well see 2009-10 reporting moderate credit growth,” it said. Bankers said many customers who had opted for the scheme were existing borrowers who wanted to reduce their interest burden. Read More »

Banks to Withdraw Low Rate Home Loan Schemes Very Soon

The special invitational or teaser rates for new home loans which were less than those offered to earlier customers are set to be withdrawn. This means a hike of up to 2% in interest rates offered by both private and public banks in the next one month. The withdrawal of the offers, which typically cover the first couple of years of a loan, are in step with a gradual rollback of incentives related to the slowdown that affected the economy in 2008-09 and also aim at adhering to Reserve Bank of India’s view that banks should not discriminate against older customers.

The apparent lack of transparency on the part of banks came up at a meeting of top bankers on Thursday with the central bank as part of RBI’s post-policy review meeting. RBI had in a January 22 communique asked the Indian Bank Association (IBA), the umbrella body of all commercial banks, why the lower rate of interest for new loan accounts could not apply to existing customers. To avoid joining issue with RBI, most commercial banks, sources said, have decided to exit their special home loan products that solicited customers at a lower rate of interest — as low as 8%, much below their prime lending rates (PLR). Read More »

Canara, Union Bank End Low Home Loan Rate Schemes

Teaser loans may be on their way out with Canara Bank and Union Bank of India opting to withdraw the scheme in anticipation of a high interest rates. The decision to terminate the schemes ahead of schedules comes less than a week after Axis Bank closed its fixed-cum-floating scheme. While Union bank of India will discontinue its fixed-cum-floating rate scheme from February 15, Canara Bank withdrew its special scheme for housing and vehicle loans from February 20. However, HDFC, the country’s largest mortgage financier, has decided to extend its scheme from February 13 to the end of the month, sources said. The country’s largest lender State Bank of India also plans to continue the scheme till the end of March, executives added.

The twin moves from Canara Bank and Union Bank of India come at a time when the Reserve Bank of India is expressed reservations about fixed-cum-floating rates. RBI is worried that borrowers may be availing of credit while looking at the present interest rate while the monthly installments will increase once the loans shift to floating rate mechanism after 24 or 36 months. In addition, it has written to the Indian Banks’ Association about the discriminatory nature of the special offers which benefit only the new borrowers, while existing borrowers have to deal with higher interest rates. Read More »

CREDAI Tamil Nadu comes up with Low Home Loan Offer

The Tamil Nadu chapter of the Confederation of Real Estate Developers’ Associations of India (CREDAI) on Thursday announced an interest subvention scheme for those purchasing properties from its 45 members. Addressing a media conference on ‘Fairpro 2010,’ the third in the series of annual property fair of CREDAI-Tamil Nadu, Chairman of Fairpro 2010 Sandeep Mehta said: “The interest subvention scheme will help home buyers acquire properties at low home loan rates starting from 5.99 per cent.” The interest rate on home loans offered by banks and housing finance companies is 8 per cent and more.

The interest subvention will be applicable for the first two years of the repayment of the loan, he said. Mr.Mehta added that it was not a reduced interest rate scheme of the banks or HFCs, but one offered by CREDAI on select properties, including those unsold, ready to occupy. The unsold property in Chennai is worth around Rs.3,000 crore, according to Mr.Mehta. On Fairpro 2010, he said the three-day property fair at the Chennai Trade Centre, Nandambakkam, will begin on February 19. The interest subvention of 2 to 2.5 per cent by developers would help customers at Fairpro 2010 pay lesser EMI and also assist in selling the unsold housing stocks of the builders, said Mr.Mehta. Read More »

Banks Turn Down RBI’s Suggestion on Cheaper Home Loans to Existing Customers

Amid a debate over teaser rates, bankers are believed to have turned down the RBI’s suggestion to extend the cheaper home loans to existing customers saying that the move will impact their bottom lines. Banks, led by State Bank of India, under special schemes offer home loans at lower interest (teaser) rates to the new customers for the first few years of the credit period, which has kicked up a storm in the industry. A month ago in January, the Reserve Bank of India had voiced concerns over ‘teaser’ rates. Later, it said the cheaper rates should be extended to existing borrowers as well.

“The IBA said if banks offer lower rates to old customers as well, this will affect their earnings as it is not feasible for them to change their deposit rates accordingly to compensate this loss of interest arising from such a move,” an official of the Indian Banks Association told PTI on condition of anonymity. The central bank had sent two letters over the past two months to the IBA seeking an explanation on this issue of teaser rates, the official said. On February 9, the country’s largest lender, State Bank of India, said that RBI has not objected to ‘teaser’ rates. SBI was the trend setter in teaser rates. It offers the special home-loan at rates as low as 8 per cent for the first year. It was a roaring success and even rivals like HDFC, which initially termed the strategy as “gimmick” followed SBI steps. Read More »

Banks Keep Home Loan Rates Steady despite RBI’s Hike in CRR

The Reserve Bank of India (RBI) hiked the cash reserve ratio (CRR) in the monetary policy review last week. Despite a more-than-expected hike in the CRR, banks have, in general, ruled out any immediate hike in lending rates. According to bankers, there is abundant liquidity in the system and they can absorb the increased cash reserve requirement.

In order to tackle the rising inflation rate, the RBI hiked the CRR (the amount banks have to park with the central bank) by 0.75 percent to 5.75 percent, but left the key rates untouched. The 75 basis points increase in the CRR to 5.75 percent is expected to draw out at least Rs 36,000 crores from the system . This move is mainly to check the food price inflation from spreading to other sectors. The RBI said the CRR will be increased by 50 basis points from February 13, and a further 25 basis points to 5.75 percent from February 27. The bank rate, used by banks to price long-term loans, remains unchanged at six percent. Read More »

Axis Bank Withdraws its Home Loan Scheme 2 Months before Schedule

The increase in the cash reserve ratio (CRR) has started taking a toll on interest rates, with Axis Bank withdrawing its teaser home loan scheme two months before schedule. India’s third-largest private bank had launched a fixed-cum-floating rate home loan scheme on January 6. It offers 8.25 per cent interest rate for the first two years. Thereafter, the loan is priced 3.5 per cent and 3 per cent less than the mortgage reference rate for loans up to and above Rs 30 lakh, respectively. A senior bank executive said given the emerging interest rate environment, the bank did not want to offer a fixed rate for two years. However, the 8 per cent fixed rate will continue for the first year.

The product was taken off the company’s website today. The sudden withdrawal surprised many. A direct selling agent who has submitted applications under the scheme said, “With Axis Bank suddenly withdrawing its teaser rate scheme, I am approaching other banks.” Axis was one of the last banks to offer such a scheme. Last year, a number of banks, led by the country’s largest, State Bank of India, launched these products. A senior SBI executive said while cost pressures were emerging, the bank would fulfill its commitment and continue to the offer the product till the end of March. Read More »

Banks Expected to Take Action over RBI’s Concern on Home Loan Rates

RBI deputy governor Usha Thorat has said the central bank has made clear to banks its thoughts on teaser rates on home loans, and banks are expected to take action. Speaking on the sidelines of a finance conference on Monday, Ms Thorat said: “Banks should have taken whatever message was given,” when asked about further progress on the regulatory front on teaser rates. The central bank has flagged of its concern over teaser rates twice in less than 30 days. Last month, in the second week of January, Ms Thorat had warned banks: “Teaser rates are increasingly being offered which is a cause for concern,” she said.

Last week, another deputy governor, KC Chakravarty, had highlighted RBI’s concern about the lack of uniformity in rates offered to different customers of the same bank. Teaser rates refer to a step-up pricing structure on loans where banks offer a low fixed rate of interest in the initial years of the loan. However, after 2-3 years of the disbursement, the interest rate on the loan gets aligned with the prevailing rates in the market. What this means is that if the interest rate environment does not change, the borrower would end up paying a higher rate of interest after the fixed rate period comes to an end. Such promotional offers are common internationally. Read More »

IBA Denies Communication with RBI on Home Loan Rates

Amidst media reports of guidelines for home loans that attempt to clamp down on teaser rates, the Indian Bank Association (IBA) has said that it has received no communication from the Reserve Bank of India (RBI), reports CNBC-TV18’s Gopika Gopakumar.

According to these speculative reports, customers will have to set aside 30-35% of their total home loan value. Senior officials at the IBA have affirmed that they have not received any communication from the RBI and that they would not dictate terms and conditions to banks. Read More »