Lenders expect an increase in home loan disbursals

MUMBAI: Lenders expect a surge in home loan disbursals during the festive season, with mortgage rates touching decadal lows because of flush liquidity and drought in business lending.

Anticipating demand for home loans, State Bank of India, Punjab National Bank, Bank of Baroda, and private lenders Kotak Mahindra Bank and Housing Finance Development Corp. (HDFC) have announced attractive home loan rates, which the lenders claim are because of speedier monetary policy transmission.

Home loan rates are now where deposit rates were in early 2019. While deposit rates have also declined since the start of the easing cycle, home loan rates have seen sharper cuts. Since Shaktikanta Das was named governor in December 2018, the Reserve Bank of India has lowered the repo rate by 250 basis points (bps).

With an eye on festive demand, SBI, the country’s largest lender, has for the first time offered credit score-linked home loans at just 6.70%, irrespective of the loan amount.

While deposit rates have also declined since the start of the easing cycle, home loan rates saw sharper cuts. For instance, SBI’S latest rates are 200 basis points cheaper than the prevailing rate of 8.7% in February 2019, narrowing the gap between current lending and deposit rates. “We are expecting at least ₹60,000 crore home loan disbursements from now to 31 March,” C.S. Setty, managing director (retail and digital banking), SBI, said over the phone.

SBI is not alone in this ratecutting spree in anticipation of the festive season. Private lender Kotak Mahindra Bank slashed its mortgage rate to 6.5% for a limited period. Other banks have also joined the bandwagon by either tweaking interest rates or waiving processing fees. Punjab National Bank announced last week that it would offer home loans at 6.6%, while Bank of Baroda rates begin at 6.75%. HDFC said it would offer home loans starting at 6.7% during the festive period.

With a home loan and loan against property (LAP) book of ₹55,623 crore, Kotak Mahindra Bank has been active in the segment. According to Ambuj Chandna, president (consumer assets) at Kotak Mahindra Bank, this is a long-term play, and while the 6.5% rate is specifically for the festive period, it will continue to be competitive on pricing home loans.

The bank, Chandna said, has been growing its mortgages quite aggressively and has been aided by the low interest rates owing to excess systemic liquidity.

While home loan rates have been cut to nudge demand, experts believe such rates are not sustainable in the long run.

“These are festive offers, and I believe interest rates will harden, and liquidity will come down. I suspect that the banking industry CD ratio is below 70%. So, when you have so much liquidity, some banks will be inspired to do credit in certain areas,” Shyam Srinivasan, chief executive of Federal Bank, said in an interview last week.

What has added to this frenzy is the lack of demand for corporate loans, leading to banks looking at other avenues to grow their loan books. Data from RBI showed that loans to industries grew 1% from a year earlier.