State Bank of India (SBI), the country’s largest lender, is likely to reduce interest rates on home loans and other retail loans next week to coincide with the start of the festive season.

The Maharashtra and Goa circles of the bank are already offering home and auto loans at 50 basis points lower than the effective rates for new borrowers.

"We would look at reviewing lending rates when the festive season begins. A decision would be made in one week,” a senior SBI official said.

SBI offers floating rate home loans at an interest rate of 10.75-11.25%. For a fixed rate home loan for up to 10 years, the bank charges an interest rate of 12.75%. The floating rate for auto loans is at 12-12.5%.

As part of the promotional offer in Maharashtra, the bank has waived half of the processing charge and is also offering a higher loan to value ratio for new borrowers, which means borrowers could get loans higher than the normal 80-85% of the cost.

Last week, Bank of Baroda lowered home loan rates for new borrowers in the hope that it would generate some demand. BoB reduced interest rates on home loans by up to 50 basis points to 10-11.50%.

A BoB official had said: “The bank has to survive in a market that is highly competitive as the home loan demand is elastic. After a series of hikes in 2006-07, the home loan demand has shown moderation. The rate cut may help to get better response.”

A slump in demand for retail loans is worrying bankers as the impact of subdued interest income on year-end profits is staring at them. Banks had raised their prime lending rates (PLRs) by 250-300 basis points during the last one year. The PLRs of the five largest banks have increased to 12.75-15.75% from 10.25-12.75% a year earlier.

“Banks will have to look at reducing lending rates (for new borrowers) if credit does not pick up till the end of August. We are already five months into the year and advances are more or less flat while banks have mobilised huge deposits,” another SBI official said.

Source: Business-Standard
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