Sunday, February 19, 2012

Study loans becoming cheaper in India

After rising for two years, interest rates have finally started softening, providing the much-needed relief to retail customers. State Bank of India (SBI) – the country’s largest lender – has reduced interest rates on education loans by 25-100 bps across various maturities. The new rates would be effective from Monday. For a loan of Rs. 400,000, the interest rate has been reduced by 25 bps to 11.75 per cent, while for loans between Rs. 400,000 and 750,000, the rate reduction is 100 bps to 12.50 per cent. And, for the loans of above Rs. 750,000, rates have been cut 25 bps to 12.25 per cent.

SBI also offers a concession of 50 bps on interest rates for loans given to female students. Education loans, which constitute about seven per cent of SBI’s Rs. 1.75-lakh-crore (Rs. 1.75 trillion) retail portfolio, saw a growth of 14.17 per cent as of December-end.

Another state-run lender, Central Bank of India, has announced a reduction of 25-50 bps on home loan rates to boost credit demand, which has seen a slow growth in the current financial year. Prospective customers of Central Bank will now be charged 10.75 per cent for loans of up to Rs. 3 million. For loans between Rs. 3 million and Rs. 7.5 million, rates have been reduced by 50 bps. For those more than Rs. 7.5 million, the new rate is 11.25 per cent, revised from 11.50 per cent. The repayment period for these offers is between 10 and 25 years. The Mumbai-based lender has also waived processing fees on home loans. It on Saturday said the new rates would be offered till March 31.

Banks are now becoming aggressive to push loan growth to meet the target for the current financial year. Banks have to indicate their targets to the finance ministry in the statement of intent at the beginning of every financial year. Central Bank of India has set a target of raising its home loan book by Rs. 500 crore (Rs. 5 billion) this quarter, on the base of a housing loan book of Rs. 6,000 crore (Rs. 60 billion). “At present, private sector banks like ICICI Bank and HDFC offer better rates than us,” a Central Bank of India official said. The bank’s total retail portfolio, including home loans, was Rs. 15,130 crore (Rs. 151.3 billion) at the end of December 31, 2011, up 35.48 per cent from Rs. 11,168 crore (Rs. 111.68 billion) a year ago.

On Friday, Bank of Maharahstra also announced a reduction of 10 bps in its base rate to 10.60 per cent. It offers home loans of up to Rs. 500,000 at the base rate. The Pune-based lender has also waived processing charges for home loans of up to Rs. 2.5 million.

Even as banks are not yet reducing their base rates – the benchmark lending rate to which all rates are linked – those may do so once the Reserve Bank of India (RBI) starts cutting interest rates. After raising the key policy rate 13 times between March 2010 and October 2011, the central bank has now pressed the pause button on its rate increase cycle and it has not raised the policy rates in the last two policy meetings.

Market participants said RBI would cut interest rates from the April policy, if not March, as inflation is now showing signs of easing after staying high for nearly two years. In January, inflation rate fell to 6.55 per cent, which was close to the central bank’s projection of 7 per cent inflation rate at the end of March.

Source: Business Standard, February 19, 2012

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