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PSU lenders offering better interest rates may lure home loan clients from private sector banks

“There is a significant difference not only between public sector and private sector banks’ interest rates but also between our repo-linked lending rate and MCLR rate,” said CS Setty, managing director at State Bank of India.

, ET Bureau|
Last Updated: Apr 06, 2020, 09.34 AM IST
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MUMBAI: When you bank-hopped for that home mortgage last year, chances are that you gave the drab, dull and dowdy state-run banks a miss. A year later, as benchmark rates plummet to a record, you’d be forgiven for running to them with balance transfer requests, reasonably certain of the ‘transmission’ assurance.

Tushar Deb, a Mumbai-based civil engineer, was considering doing exactly that when an adviser reached out to him after Mint Road slashed the repo by an eye-popping 75 basis points — in one go.

“I don’t know how and when my bank passes on the rate cut benefits,” said Deb. “What else do you need if you are offered a 75-basis-point lower rate via a shift?”

So, good retail assets could move to state-run lenders that promise better transmission, with onward loan rates to the end-consumer being largely in kilter with their cost of funds.

“There is a significant difference not only between public sector and private sector banksinterest rates but also between our repo-linked lending rate and MCLR rate,” said CS Setty, managing director at State Bank of India. “People who understand rate movements would choose to opt for the market-linked rate…”

Although some lenders have not yet taken a call on individual rate actions following the central bank move, the current difference is quite stark.

SBI offers 7.05% for its repo-linked lending rate (RLLR) while six-month and 12-month Marginal Cost of Funds based Lending Rates (MCLRs) offer 7.70-7.75%, show data compiled by MortgageWorld, a Mumbai-based advisory firm.

“We are obtaining about 8-10 queries every day compared with maybe one every 2-3 days before the RBI rate action,” said Vipul Patel, founder, MortgageWorld. “Home loan consumers can tap a wide interest rate arbitrage.”

In all such categories, Axis Bank offers rates in the range of 7.80-8.15%. ICICI Bank offers 7.50-9%. Mortgage lender HDFC is expected to take a call on rates soon, but offers 8% now.

But some of the decisions may be stuck because of the lockdown, which prevents borrowers from visiting the premises of their mortgage financiers.

“There is a difference between the EMIs paid to public sector banks and those paid to private sector banks,” said Virendera Sethi, head retail assets, Bank of Baroda. “We do not take any documents from customers who want to shift but have to do a valuation report which can also be done only after the lockdown is lifted.”

Some banks are processing the complete loan evaluation procedures, although physical visits are needed for decision-making.

“How many customers will shift to public sector banks will be clear after the lockdown is lifted,” said Sethi.

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