SBI may raise home loan ticket size with likely spread cut

Saikat Das
moneycontrol.com

India's largest lender the State Bank of India (SBI) may launch a new home loan product that is expected to facilitate millions of home loan borrowers to avail higher credit limit at a lower interest rate. It is learnt to have already submitted the product proposal and it is awaiting for the final nod from an internal policy making body - CCPPC (Credit Pricing and Processing Committee).

"The product proposal has already been tabled. The concerned managing director has ratified the proposal. The policy (CCPPC) making body will now have to approve it. This is likely to be finalised in the next few weeks. Home loan borrowers should get the advantage of higher ticket size from this product provided it finally comes out in right earnest," a person familiar with the development told moneycontrol.com.

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So far, SBI is offering home loans in two slabs i.e. upto Rs 30 lakh and above Rs 30 lakh. The bank may increase the level to 40 or 50 lakhs under the proposed scheme but with, some reduction in spreads also, sources said. Speculations are also rife that the bank may offer home loans at the base rate for the first slab. However, nothing is finalised yet.

The lender is charging 9.95 percent per annum (base rate 9.70 plus a spread of 25 basis points) for the first segment while the rate stands at 10.10 percent per annum above Rs 30 lakh. The bank offers the lowest interest rate in select segment(s) of home loans in the industry.

When contacted, Krishna Kumar, managing director at SBI said, "As of now, there is nothing of that sort. We are not proposing to offer home loans at base rate. With the changing time and needs, however, there might be some proposals in the next 10-20 days."

Both the Reserve Bank of India (RBI) and the government have been insisting banks to pass on the rate cut benefits to borrowers. Moreover, the authorities want banks to facilitate housing sector especially in the low cost bracket.

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SBI's home loan stood at nearly Rs 1.20 lakh crore as of March 31,2013 compared with Rs 1.03 lakh crore a year ago, an increase of more than 16 percent year-on-year. Of this book, home loans upto 30 lakh category forms the lion's share to the tune of 80 percent and above.

"For banks, it (up to Rs 30 lakh) is the most expensive credit. Currently, SBI offers the cheapest rate in this category. If the slab is increased further, consumers will undoubtedly get more benefits. It is the rate differential that attracts home loan borrowers towards SBI home loans irrespectively of situation," said Adhil Shetty, CEO, BankBazaar.com.

In 2013 alone, the central bank has so far cut the policy or repo rate (at which banks borrow money from RBI) by 75 bps and also reduced the cash reserve ratio (CRR or the portion of deposits bank keep with RBI) by 25 bps.

Between January 2012 and April 2013, repo rate had been reduced by 100 bps, CRR by 200 bps. According to India Ratings & Research, for state-owned banks, the median base rate reduction was only 45 bps, while the same was zero for private banks. Certainly, some private lenders had reduced their base rates by 25-40 bps. 

SBI chairman - Pratip Chaudhuri has on many occasions expressed banks inability claiming a sharp cut in CRR (currently at 23 percent) obligation instead of repo rate (7.25 percent) reductions.

Due to continued stress in corporate loans, he has been advocating for expansion in retail loans wherein default rates are very low compared to corporate loans. Sources say, the SBI cheif keeps track of retail loans on daily basis.

saikat.das@network18online.com