Amidst excess liquidity, the largest private sector lender ICICI Bank, on September 28, 2017, launched a mortgage product assuring borrowers a one per cent cash-back on their monthly installment payment. The product, which comes amid a long period of excess liquidity, sluggishness in overall credit pick-up and fears of a slowdown in the residential property market, can help a borrower get up to 11 per cent of the principal amount, in a 30-year loan period.
The bank has launched two more schemes – a 20 per cent cash-back for spends by its debit and credit card customers up to a maximum of Rs 10,000 and a 20 per cent step-up repayment, which can be availed of alongside, executive director Anup Bagchi said. However, bank said the offer is only for new home loan borrowers. The bank also did not say how much liquidity it is sitting on.
After hitting a record six-decade low of 5.08 per cent in FY2017, which was the worst since FY1953, credit growth has been trending down in the system. In the April-July period, the combined credit dispersal declined by a whopping Rs 1.53 trillion or 1.9 per cent, over the same period last fiscal. The bank posted a mortgage loan growth of 17 per cent in the first quarter and expects to maintain the same momentum ahead as well, Bagchi told reporters.
The cash-back product comes, weeks after its smaller rival Axis Bank also launched an offering promising to waive EMIs if the borrower does not default on EMIs, in an effort to improvise borrower behaviour. With both these offers, the focus is on ensuring that the borrower pays regularly through the loan contract period and there is no pre-payment. Prepayments and an ensuing reduction in the duration of the loan, can deprive a bank of interest income for the duration of loan. Bagchi, however, did not share the prepayment rate which the bank is witnessing at present.
See also: Axis Bank to waive a few EMIs, in new home loan product
“For the longer tenure loans, it makes sense for the customer to stay in the mortgage product for a much longer time, with all these incentives. The net increase they have to pay out is lower than the investments they can make with the surplus money, if they have,” Bagchi said. He said the effective rate of interest for a borrower availing of an affordable housing product, is 4.62 per cent after factoring in the Rs 2.5 lakh direct cash subsidy from government and also the benefit deriving from the income tax exemptions.
The minimum loan tenure to avail of the product, has been fixed at 15-30 years and a customer has the option either to adjust the cash-back against principal outstanding, or get it as a direct credit in their bank account. The cash-back will start accruing from the first EMI itself, but will first get credited to the customer after completion of the 36th EMI and subsequently on a yearly basis. It is applicable for other mortgage products like loan against property, lease-rental discounting and top-ups on existing mortgage loans as well, the bank said.
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