PSU Banks yet undecided on Floating Home Loan Rates
Kolkata: Even as major private sector home loan lenders are passing on the impact of a rise in cost of funds to their borrowers, there are a few public sector banks which are contemplating against raising floating home loan rates for their existing customers.
While a few of them are planning to freeze the floating rate for small and medium-ticket customers for the time being, others are planning to launch separate schemes altogether to shield their existing customers. For instance, Allahabad Bank has announced a freeze in its home loan rates at the current level for the time being for borrowers up to Rs 10 lakh.
AllBank has, on Monday, raised its benchmark prime lending rate (BPLR) by 75 basis points (bps) to 13.5% from the current 12.5%. The change in BPLR will, however, not be applicable to home loan borrowers up to Rs 10 lakh, the bank said.
Bank of India (BoI), on the other hand, intends to link its floating home loan rates directly to its prime lending rate (PLR), whereas it maintains a floating reference rate (FRR) for existing home loan borrowers. It intends to keep its FRR unchanged at the current level or there would be a marginal increase, according to a senior BoI official.
Meanwhile, Indian Bank CMD KC Chakrabarty said that the bank may not require to raise its lending rates at all. “We have increased our lending rates very recently and may not need a follow-up rise in rates. Our cost of deposits was well under control.”
However, not all public sector banks could play the same tune. For instance, Uco Bank was considering to protect its existing home loan customers. However, after a detailed study on its cost of funds, it de-cided to raise home loan rates on Monday. The bank raised its BPLR by 75 bps to 13.5%.
There will be a matching impact on home loan borrowers, who have taken loans on floating rate basis. Significantly, nine out of 10 existing home loan borrowers are feeling the pinch with the latest rise in interest rates. For the simple reason that almost 90% of home loans borrowers have taken the loan on floating rate that are subject to frequent changes, following interest rate movements.
In the private sector, ICICI Bank, which has the largest home loan portfolio, was the first to increase home loan rates to all new and existing customers. The bank’s home loans are now more expensive than rival HDFC’s and the revision may now see a rebalancing of its portfolio. On Monday, Centurion Bank announced a 50 basis points increase in its PLR to 15% per annum.
An official said that the rates would apply to new customers and the bank would take a decision on whether to revise rates for existing home loan borrowers in due course. Leading home loan financiers like Housing Development Finance Corporation (HDFC) and State Bank of India (SBI) have confirmed that nearly 90% of their existing home loan customers are actually paying floating rate interest.
As a thumb rule, every 0.25 percentage point rise in home loan rates translates into a higher equated monthly installment (EMI) of around Rs 16 per one lakh for a 20-year loan. Likewise, customers need to pay an additional Rs 15 per one lakh for a 15-year loan, Rs 14 per lakh for a 10-year loan and Rs 13 per lakh for a 5-year loan.
Fixed rate home loan customers are, on the other hand, protected from short-term interest rate movements. Lenders revise fixed rates once in two/three years under the reset clause attached to the loan.