Anticipating demand for home loans, State Bank of India, Punjab National Bank, Bank of Baroda, and private lenders Kotak Mahindra Bank and Housing Finance Development Corp. (HDFC) have announced attractive home loan rates, which the lenders claim are because of speedier monetary policy transmission.

Home loan rates are now where deposit rates were in early 2019. While deposit rates have also declined since the start of the easing cycle, home loan rates have seen sharper cuts. Since Shaktikanta Das was named governor in December 2018, the Reserve Bank of India has lowered the repo rate by 250 basis points (bps).

With an eye on festive demand, SBI, the country’s largest lender, has for the first time offered credit score-linked home loans at just 6.70%, irrespective of the loan amount.

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Decadal lows

SBI’s latest rates are 200 basis points cheaper than the prevailing rate of 8.7% in February 2019, narrowing the gap between current lending and deposit rates. “We are expecting at least 60,000 crore home loan disbursements from now to 31 March,” C.S. Setty, managing director (retail and digital banking), SBI, said over the phone.

The bank’s home loans stood at 5.05 trillion and accounted for 23.4% of its total loan book. Setty said SBI is reducing the turnaround time for vendor management and services like legal work and valuations that are critical to the home loan process.

“Through our retail loan management system, these critical components are being moved online. Today it takes about 7-10 days for lawyers and valuers to give their opinion, and by 31 October, we will be fully digitizing vendor management. Where we have tied up with builders, we want to do it in three days,” he added.

SBI is not alone in this rate-cutting spree in anticipation of the festive season. Private lender Kotak Mahindra Bank slashed its mortgage rate to 6.5% for a limited period. Other banks have also joined the bandwagon by either tweaking interest rates or waiving processing fees. Punjab National Bank announced last week that it would offer home loans at 6.6%, while Bank of Baroda rates begin at 6.75%. HDFC said it would offer home loans starting at 6.7% during the festive period.

With a home loan and loan against property (LAP) book of 55,623 crore, Kotak Mahindra Bank has been active in the segment. According to Ambuj Chandna, president (consumer assets) at Kotak Mahindra Bank, this is a long-term play, and while the 6.5% rate is specifically applicable to the festive period, it will continue to be competitive on pricing home loans even after this period.

The bank, Chandna said, has been growing its mortgages quite aggressively and has been aided by the low interest rates owing to excess systemic liquidity.

While home loan rates have been cut to nudge demand, experts believe such rates are not sustainable in the long run.

“These are festive offers, and I believe interest rates will harden, and liquidity will come down. I suspect that the banking industry CD ratio is below 70%. So, when you have so much liquidity, some banks will be inspired to do credit in certain areas,” Shyam Srinivasan, chief executive of Federal Bank, said in an interview last week.

What has added to this frenzy is the lack of demand for corporate loans, leading to banks looking at other avenues to grow their loan books. Data from RBI showed that loans to industries grew 1% from a year earlier, whereas retail loans grew 11.2% in July.

Setty of SBI also believes that borrowers will look at service quality as well as the rate of interest. “It is not quite a price war but more of a realignment. Since the corporate book is not growing, banks will look for secured loan books, and home loan is a better option,” he said.

This level of competitive pricing of home loans also bears testament to the effective monetary transmission or the pass-through of RBI’s rate cuts into more tangible bank lending rate cuts. In its September bulletin, the central bank pointed out how surplus liquidity, coupled with its forward guidance, facilitated monetary transmission.

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