The home loan battle is getting warmer. With improving liquidity conditions, both private and public sector banks are now cutting rates to attract customers.
For instance, private sector players HDFC [ Get Quote ], ICICI Bank [ Get Quote ] and Axis Bank are all providing fresh home loans at around 9.25 per cent, floating, to their new consumers. This offer is also open for borrowers who wish shift loans from their existing banks.
However, for once, public sector banks (PSBs) seem to be using attractive structured offerings to provide stiff competition to the private lenders. Suddenly, PSBs are raining offers on home loan consumers. The Canara Bank [ Get Quote ] offer of fixed rates for the first 5 years was quite popular.
State Bank of India [ Get Quote ], the country's largest bank, had first brought down home loan rates to 8 per cent for the first year. Now it is offering the home loan customer a fixed rate for the next two years. Here, we analyse these different rates on offer.
Below Rs 30 lakh
For loans below Rs 30 lakh (Rs 3 million), State Bank of India is offering 8 per cent fixed for the first year, nine per cent fixed for the second and third year.
The consumer, thereafter, can decide between a floating rate thereafter at 2 per cent below the bank's benchmark prime lending rate, the SBAR, prevalent at that time (current SBAR is 11.75 per cent, so if it remains the same, the rate will be 9.75 per cent after three years).
The other option is to opt for a fixed rate after three years, for the fourth and fifth year at 1 per cent below the SBAR prevalent at that time. The decision, though, has to be made while availing the loan now. In other words, a homebuyer has to take a call now on the interest rate movements in the future.
Additional benefits include, zero processing charges and no pre-payment charges, if the payment is made from one's own sources.
Sources within HDFC have correctly noted that if you take the average rate (assuming the rate from the fourth year on will be 9.75 per cent floating), then it works out to 9.35 per cent for SBI versus 9.25 per cent for them.
However, given the uncertainty surrounding interest rates and, more importantly, the tendency of all lenders (contrary to popular opinion, PSBs banks also behave similarly) not to pass on the benefit of reduction in interest rates to their existing "floating rate" customers, it is always safe to go for fixed rates, as long as they are economically priced and even though it is only for the first few years.
This is the reason, I would personally still rate the Canara Bank scheme higher than SBI, as it provides for a fixed rate for five years, with other charges that are the same as SBI.
But with this introduction of fixed rate for three years, the SBI plan scores over the other lenders who lend only on "floating rate" basis.
The mighty sales machinery of SBI is already in full flow and their local level managers seem keen to do business. Let us see how the consumers react to this new scheme.
SBI car loan scheme
The car loan scheme from SBI is quite interesting. First, it cut the car loan rates in February to 10 per cent for the first year and it was to be reset second year onwards.
The recent scheme, announced on June 28, goes a step ahead. That is, the five-year new car loan scheme has a fixed rate of interest for the first 3 years (8 per cent for the first year and 10 per cent for the next two years) and at 0.5 per cent below SBAR for the fourth and fifth year (if the SBAR stays at current levels, it will be at an effective rate of 11.25 per cent).
The processing fee is zero till September 30. Prepayment charges are 2 per cent (plus applicable service tax). This compares very favourably with the five-year fixed rate schemes available from private sector lenders at around 12 per cent.
It also has an option for an overdraft facility if you are taking a loan for more than Rs 3 lakh, though this is at a slightly higher rate.
Its used car scheme is again one of the best available in terms of rates. The only problem -- a customer has to approach the bank to get this loan. This is quite unlike the private sector banks' options where the car dealer himself takes care of the loan sanction.
This is a product (unlike home loans) for which the consumer is not used to dealing with the bank directly. The convenience the car dealer offers of getting the loan sanctioned often drives customers to the private sector, though the SBI product is clearly better.
The writer is CEO, ApnaPaisa.com, a search comparison engine for loans, insurance and investments.