SBI decides freezing loan rates at 8 cents

ENS Economic Bureau

Mumbai: Home loan rates are going further southward. Ahead of a meeting between chiefs of public sector banks and acting finance minister Pranab Mukherji on Monday, State Bank of India (SBI) has decided to freeze interest rates on all new home loans for a period of one year at 8 per cent per annum.

The new SBI rate is almost 175-275 basis points cheaper than the new rates of HDFC, the leader in the home loan segment.

The new scheme of eight per cent interest rate will be offered for loans availed between February 2 and April 30, 2009. According to SBI, interest rate will be reset after the freeze period to the same rate as originally applicable under the respective schemes. The benefit of the latest move will be available to SBI's existing home loan customers. Further, existing borrowers of the two home loan schemes - loans up to Rs 5 lakh and above Rs 5 lakh but up to Rs 20 lakh, called SBI Special Home Loan scheme - would also be given this rate for a period of one year. "The originally contracted rate will be applicable after the one year period," SBI said.

"For them (existing customers), there is a new product, the 'SBI Lifestyle Loan', a multipurpose loan to the extent of 10 per cent of their home loan up to a maximum of Rs 5 lakh at an interest rate of 8 per cent per annum for a period of one year," it said.

The latest SBI rates are cheaper than the existing rates in the banking industry. As part of a package, public sector banks, including SBI, had last month announced new home loans of Rs 5 lakh and less at a reduced rate of up to 8.5 per cent, while capping the interest rate at 9.25 per cent for loans of Rs 5-20 lakh to provide relief to the common man. HDFC had recently announced a 150 basis points cut in new loan rates under which amount up to Rs 30 lakh will have interest of 9.75 per cent and above Rs 30 lakh attract interest of 10.75 per cent per annum. Punjab National Bank on Friday reduced its prime lending rate to 11.5 per cent the lowest in the industry. It has also cut interest rates on retail lending schemes such as housing loan, car loan and personal loans.

PSU banks had earlier announced a limited period home loan loan package, which is valid till June 30, 2009. Under this, public sector banks will lend without processing fee or pre-payment charges. Besides, they will also carry the added bonus of free life insurance cover and an unchanged interest rate ceiling for the next five years.

Meanwhile, SBI has also announced a new package to ease the liquidity position for small and medium enterprises (SMEs). An additional working capital facility of 20 per cent of the fund-based limits will be given to take care of inventories of raw materials, finished goods as also delayed payments from their buyers in the current downturn at an interest rate of 8 per cent. The loan is repayable in one year.

The package

• All new home loans at 8 per cent rate for one year

• Even existing borrowers of two home loan schemes - that is loans of up to Rs 5 lakh and loans between Rs 5 lakh-Rs 20 lakh - will need to pay only 8 per cent

• Other existing borrowers can also borrow up to 10 per cent of their exposure subject to a cap of Rs five lakh at 8 per cent

• Interest rate will be reset after the freeze period to the same rate as originally applicable under the respective schemes