Second home may cost more at PSU banks too

APRIL 30, 2007: Some public sector banks are considering the option of making the second home loan a tad expensive. The difference in interest rates could be in the range of 25-50 basis points.

PSU banks, which command almost 50% of the home loan market, have so far offered a single rate of interest across the portfolio depending on the tenor and amount of the loan. However, a differential pricing formula has already been adopted by banks such as ICICI Bank.

The second house was a great investment option given the property boom, but banks now want to encourage genuine demand and are considering the interest rate differentiation. As a result, know-your-customer norms for home buyers may get a little more stringent. Some banks are planning to insist on affidavits for first-time borrowers stating they do not already own a house. For this, banks will need to share data on home loan borrowers.

Home loans form 12-35% of the loan portfolio of banks. The total housing loan portfolio of banks and housing finance firms is Rs 2,00,000 crore, of which public sector banks account for more than Rs 1,40,000 crore. Home loan growth rates are expected to fall to 15% after two years of robust 33-35% growth and sharply below the expected overall credit growth of 22-24%.

RBI governor YV Reddy has said the reduction in risk weights for home loans is intended to make loans cheaper. It is not expected to impact banks’ portfolios.

Source: economictimes