The State Bank of India- a public sector and the largest of all Indian banks- announced a home loan (Hi-Five Loan) at 8% of Rs. 5 lakhs for a period of 5 years. It also announced home loans up to Rs.50 lakhs with interest rates of 8% for the first years and 8.5% for the next two years, making the offers the cheapest in the market now.
The Bank also announced that no processing fees would be charged for a period up to 7th November’09 as a promotional offer to facilitate the buyers in the forthcoming festive season.
The Hi-Five loan can be stretched up to five more years in which case the customers have two options. Either they can opt for a floating rate of 2.75% below State Bank Advance Rate (SBAR) or a fixed rate of 1.25% of SBAR for rest of the period. Borrowers of loans above Rs.5 lakhs shall also have the above options for the entire period of 25 years.
The home loan market has been dominated by HDFC so long. The present offer shows the Public Sector Bank’s eagerness to work out a higher niche in the highly competitive home loan market.
The present rate of interest charged by HDFC is 8.75% for loans up to 15 lakhs, 9% for loans between 15 and 30 lakhs and 9.5% for loans above 30lakhs for periods of 20years.
Apparently irked by cheaper rates offered by SBI, the chairman of HDFC, Deepak Parekh, decried the attempt of ‘teaser type loans’ offered by SBI stating that such artificially offered cheaper rates at initial years makes the loan unserviceable later when the rates normalize resulting in US sub-prime like crisis. “These are the lessons (US sub-prime crisis) one should learn”, he added.
However in the present offer of SBI, the rate of interest would be lower than that offered by HDFC for the entire period of loan. In fact this aggressive marketing by SBI is likely to force other market players to lower their interest rates.
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