Mumbai,Manju AB: State Bank of India (SBI), the country’s largest bank, which announced a 0.40% cut in its base rate (the floor rate below which banks are not allowed to lend) last week and spread cheer among customers, has taken most of it back.
The bank has announced a one-time switchover fee of 0.57% for existing customers who have availed home loans on a floating-rate basis to enjoy the lower interest rate, following the cut in base rate.
This means an existing customer with a Rs 10 lakh floating loan will have to pay Rs 5,700, if he wants to avail the lower interest rate. If he doesn’t pay the fee, he will continue to be charged at the earlier interest rate.
Interestingly, HDFC, which also reduced its home loan rates, is not levying a switchover fee.
HDFC cut its rates by 0.25% to 9.60% for women customers and 9.65% for general customers.
While SBI’s base rate is as low as 9.30%, it will offer home loans at 9.50% for women customers and 9.55% for general customers with effect from Monday (October 5), around a 0.20-0.25% mark-up over the base rate of 9.30%. This means that new customers will get only half of the rate-cut benefit.
Customers, who have lapped up floating-rate loan products, may see no logic behind the switchover fee.
In a circular to the branches, the bank said: “The revised interest rates will also remain available to existing home loan borrowers, who are paying higher rates and opt to switch over to the current interest rates on an upfront payment of a one-time switchover fee of 0.57%, including service tax of the remaining outstanding of the loan.”
When dna contacted Keki Mistry, CEO and vice-chairman, HDFC, he said: “There is no fee for switching over to the new rate. All existing customers will get the benefit of the lower rates. Lower cost of funds has enabled to pass on lower rates to the customers. There will be a structural demand for housing in India, with 60% of the population being below 30 years of age.”
Arundhati Bhattcharya, chairman, SBI, told dna: “All existing customers will get a full pass-through of 0.40%. Even in 2013, we used to lend at 0.30% over the base rate. Those people, if they want, can change because now the spread is less at 0.20% to 0.25%. Since the start of the calendar year, while base rate reduced by 0.70%, home loan has got 0.75% cheaper. The problem is arising, because in April this year, we reduced spread over base rate to zero. But it is difficult to maintain zero spread over base rate for long. We are still the lowest in the market.”
SBI’s total home loan outstanding, at Rs 1.73 lakh crore, at the end of the first quarter is the highest for any home financier in the country. It is growing at 15% over the previous year, with an average ticket size of Rs 22 lakh.
On Monday, Union Bank of India also reduced its base rate by 0.35% to 9.65%, with effect from October 5.
Vineet Jain, chief executive officer, Loanstreet.in, a portal that facilitates home loans and personal loans, said: “There is always a mark-up or a margin over the base rate that banks charge their customers. Only the cream of the customers manage to get loans at the base rate.”