BOB Cuts Loan Rates, Others To Follow

September 07, 2007: Owing to the sharp fall in the home loan demand in the recent times, the Indian banks have begun to cut interest rates. Interestingly, the banks have been propagating their move as Diwali offer in September itself, in spite of the fact that the festival would be celebrated in November.

Meanwhile, Bank of Baroda has decreased its interest rate from 10.75 to 10.25 per cent for a loan of Rs 20 lakh extending to the tenure of 20 years. The other public sector banking majors like State Bank of India (SBI), Punjab National Bank (PNB), and Union Bank are also about to cut their home loan interest rates by at least 50 basis points.

However, the private sector banks have not yet signaled any such movements. According to the reports of a leading business channel, India’s biggest home loan lender ICICI has no intentions to slash its interest rates.

Banks Current Rates Likely Rate Cut SBI 11.25 0.5 Union Bank 10.75 0.5 PNB 9.5 0.25 – 0.5

The Indian home loan industry is shocked by growth rate of 3-4 per cent, since April 2007, the first month of the current financial year.

Rise in home loan interest rates from 7 per cent of the early 2000s to 10-14 per cent in the recent times has severely impacted the demand. Prior to 2005-06, a staggering year on year growth of 49.5, 73.9 and 48.6 per cent had been witnessed by the Indian banks.

However, the trend was put on hold with rise in interest rate in 2005-06, subsequent to which growth rates fell to 29.1 per cent. Year 2006-07 followed the suit registering 26.6 per cent growth over the preceding year.

Observing a dramatic fall in growth rates this fiscal, the Indian financial institutions foresee the rate falling to the levels of 17-18 per cent this year.

Industry experts find the trend positive for the financial buoyancy of the Indian real estate and consumers. Earlier, the low interest rates had taken demand of property to unprecedented levels and translated into soaring property prices. 

Now that the markets have started price corrections, and the interest rates are likely to come to reasonable levels, the equations would gradually balance.