Full of cash, banks cut mortgage rates to decade lows
Emptied by excess liquidity while general credit demand remains well below desired levels, the main players in mortgage lending National Bank of India, HDFC, ICICI Bank and Kotak Mahindra Bank cut their prices to a ten-year low, leaving consumers spoiled for choice.
The interest rate war comes as banks sit on huge excess liquidity which last week topped Rs 6.5 lakh crore, according to Care assessments. Excess liquidity is a drag on banks’ results, as they have to pay interest to depositors which currently only exceeds 2.5%.
The rate war is also explained by the continued incentive of the monetary authority which has reduced repo rates by 200 basis points since March 2020 to 4% to help revive the economy ravaged by the pandemic, but the demand for credit remains below 6 percent.
According to RBI data, mortgage lending growth slowed in FY21 due to the pandemic, although the decline actually started in March 2020. From 17.5% in January 2020, mortgage lending growth declined by half to reach 7.7% in January 2021.
For banks, home loans are safe bets in the current scenario because the risk of default is minimal with a gross NPA of only 0.67% for SBI which dominates the market and for HDFC as well, this NPA is less than 1%.
Banks are hoping that the burgeoning economic recovery will lead to more home purchases, which have faltered since last March. While business demand is still far behind and at half-mast from an NPA perspective, for banks, the main reason for pushing home mortgage lending is its risk-free nature. Unlike personal loans, home loans come with collateral. In the event of default, banks can seize the asset and sell it at auction.
At Rs 14.17 lakh crore in November 2020, direct home loans account for more than half of banks’ personal loans.
For consumers, there are other benefits as well – attractive real estate prices due to the pandemic and the resulting reduction in stamp duties in many states after the pandemic hit the real estate industry hard.
But lenders are always choosy in pricing loans differently, depending on the risk profile and creditworthiness of borrowers. For SBI and Kotak Mahindra, the new rates of 6.7% and 6.65%, respectively, only apply to borrowers with a credit score of 800 and above. In addition, except HDFC, the new prices are only valid until March 31.
The rate war started on March 1 when market leader SBI, which holds more than Rs 5 lakh crore in direct home loan books and has a 34% market share of Rs 14.17 crore , even went so far as to shake up the processing fee as well, and cut rates by 10 basis points to 6.7 percent.
The SBI offer of 6.7% with no processing fees is until March 31st for loans up to Rs 75 lakh and 6.75% for higher loans. It also offers an additional 5 basis points lower rate for women and, if applied through its mobile app Yono, said Saloni Narayan, deputy general manager of retail at SBI.
“SBI, as the market leader in real estate finance, takes ownership of enhancing consumer sentiment. Affordability for the consumer increases tremendously with current offerings as the EMI will be reduced, ”she said.
On the same day, Kotak Mahindra Bank followed suit, cutting its rate by 10 basis points to 6.65%, making it the lowest in the mortgage market. Even before that, it had the lowest rate in many months at 6.75 percent.
Two days later, HDFC, the leader in pure mortgages with over 19% market share (according to a report by Emkay Global), joined the race and cut rates by 5 basis points to 6.75% for new and existing customers for an unlimited period. But later he also lowered rates by an additional 5 basis points until March 31 and with a fixed processing fee of Rs 3,000.
Last month, Chairman Dinesh Khara said SBI’s mortgage portfolio had passed the 5 lakh crore mark, bringing its market share to 34%. He said this was due to dramatic growth in the mortgage segment in December 2020, when it posted the highest level of sourcing, sanctions, disbursements and growth the bank has ever recorded.
On average, SBI receives around 1,000 home loan clients per day, he said, adding that despite the massive decline in the real estate industry triggered by the pandemic, our housing business has experienced unprecedented growth so far. this year.
Inspired by the main real estate financiers, ICICI Bank also reduced its mortgage rates to 6.7% on March 5 for loans up to Rs 75 lakh and for a higher amount the rate will be 6.75% . The private sector lender said the new rate is the lowest in 10 years and revised rates will be available until March 31.
“In recent months, we have seen a resurgence in consumer demand to buy homes,” said Ravi Narayanan, Head of Guaranteed Assets at ICICI Bank.
In November 2020, ICICI Bank became the first private sector lender to break the 2 lakh-crore rupee mark in the mortgage portfolio, giving it a 13% market share, according to an Emkay Global report. .