SBI cuts home loan rates in affordable housing push

State Bank of India (SBI) has reduced interest rates on home loans of up to Rs30 lakh by 25 basis points—8.60% to 8.35%—for new borrowers


In January, SBI cut its marginal cost of funds-based lending rate (MCLR) across all tenors by 90 basis points, the steepest cut in several years. Photo: Pradeep Gaur/Mint
In January, SBI cut its marginal cost of funds-based lending rate (MCLR) across all tenors by 90 basis points, the steepest cut in several years. Photo: Pradeep Gaur/Mint

Mumbai: State Bank of India (SBI) on Monday cut rates on home loans of up to Rs30 lakh by 25 basis points for new borrowers as it seeks to capitalize on demand generated by government efforts to spur affordable housing.

The rate was reduced to 8.35% from 8.60%—the second time in 2017 that India’s largest lender has slashed home loan rates after an effective 50 basis point cut that led other lenders to follow suit.

One basis point is one-hundredth of a percentage point.

For loans ranging from Rs30 lakh to Rs75 lakh, the bank has cut rates by 10 basis points .

India’s banks are focusing on affordable housing to take advantage of incentives offered by the government to home buyers and to counter the absence of demand for credit from other sectors of the economy. The National Democratic Alliance (NDA) government’s Housing for All initiative envisages every Indian family owning a house by 2022, the 75th anniversary of independence.

In the two years to March 2017, credit to industry has grown 0.76%. In comparison, personal loans grew 39% and mortgages rose 36%, data from the Reserve Bank of India shows.

“Banks will look at the housing space extensively since corporate lending has slowed down,” said Siddharth Purohit, senior banking analyst, Angel Broking Ltd. “There is enough space for both non-banking financial companies (NBFCs) and banks to grow. Interest subsidy scheme will be the motivating factor for new home buyers.”

A statement by SBI announcing Monday’s rate cut also said that eligible home loan customers can avail of an interest subsidy of Rs2.67 lakh under the Pradhan Mantri Awas Yojana scheme. It also said that it had come out with special offerings for construction finance to builders of affordable homes.

Last month, SBI tied up with the Confederation of Real Estate Developers’ Associations of India to offer concessional loans for affordable housing projects after the association launched 375 affordable housing projects across India.

According to the 2011 Census, India has a housing shortage of 62.5 million units. In the budget this year, the government gave infrastructure status to affordable housing in order to encourage investment and enhance funding access. It also increased budget allocation for housing: Rs23,000 crore was earmarked for rural housing, up 43% from a year ago, and urban housing allocation was 22% higher at Rs6,000 crore.

According to property advisory firm Liases Foras, during the March quarter, 61,214 units were sold in top eight cities, of which houses below Rs25 lakh contributed about one-sixth. Of the total new residential supply, 21% was made up of from houses costing less than Rs25 lakh.

“Demand for affordable housing is enormous. Last quarter has already shown an upward trend and in my sense, in next two years the sales will grow twice,” said Pankaj Kapoor, managing director, Liases Foras.

Other banks are also getting aggressive on the affordable housing sector. For instance, earlier this month, Indian Bank said it was raising Rs5,000 crore to specifically finance infrastructure and affordable housing projects. The buzz around affordable housing is attracting new entrants into this market as well.

According to Crisil Rating, the number of housing finance companies increased from 55 in fiscal 2014 to 70 in fiscal 2016. Around 80 licences are pending with the National Housing Bank.

The ratings agency estimates that the affordable housing segment was worth Rs1.6 trillion, about a quarter of the overall housing loan market, at the end of March. It expects specialized housing finance firms that focus on affordable housing to grow their loan books at an annual average of 40% over the next three years.

“Increased competition and relative saturation of key metro markets has led to the affordable housing emerging as a new segment for a large number of the recent entrants. To top it up, government initiatives like Housing for all by 2022 and regulatory impetus have provided much needed stimulus,” Crisil said in a note on Monday.

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