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To whom are these reduced rates applicable
The reduction in State Bank of India’s (SBI’s) rates, is not as widely applicable, as is made out to be. It is not that the home loans interest rates have been reduced across the board, for all categories of borrowers. It is only for the affordable housing segment, where the loan amount is up to Rs 30 lakhs, that the lending rates have been reduced from 8.60 per cent to 8.35 per cent. This reduced home loan rate, is applicable for female borrowers, who are salaried.
So, the benefit will only accrue to a certain class of borrowers. For non-salaried female borrowers, the new home loan rate is a little higher, at 8.40 per cent.
This is claimed to be lowest lending rates, for home loans in India. However, this is not really the case. Bank of Baroda had announced a credit score-based home loan at 8.35 per cent, for borrowers with a CIBIL score of 760 or above. In case of Bank of Baroda, the 8.35 per cent rate, which is in fact amongst the lowest home loan rate, is applicable to a broader category of borrowers, unlike in the case of SBI, which is applicable to female salaried borrowers taking a home loan of up to Rs 30 lakhs only.
So, if you have better credit score, you can always get better terms from Bank of Baroda, especially in case your fund requirements are outside the eligibility criteria specified by SBI.
Rate for other categories of borrowers
For home loans between Rs 30 lakhs and Rs 75 lakhs, the rate has been reduced by 10 basis points only, whereas, there is no relief to the borrowers in the category of above Rs 75 lakhs.
Purpose of the rate cut and whom it will benefit
The recent reduction in home loan rates, is partly to give a boost to the prime minister’s pet project of ‘Housing for all by 2022’. SBI has also been partly motivated by the aim to capitalise on the demand for credit, for houses in the affordable category.
This latest reduction in home loan rates, will generally benefit borrowers in non-metro cities, where the real estate prices are still in the range of affordable housing. Considering the huge potential in this segment, SBI has taken the lead, to seize the ‘first mover advantage’. As SBI is the leading home loan lender, other banks will have to follow suit, to capture this untapped market.
Moreover, as people who avail of loans under this category, will also be able to avail of the interest subsidy under the Pradhan Mantri Awaas Yojana, this affordable housing segment is likely to see a huge spurt and make this special home loan product quite a success.
As SBI has not announced any reduction in the base rate or the MCLR (marginal cost of funds-based lending rate), this reduction in rates will not benefit people who have borrowed, either under the base rate regime or even under the newly-introduced MCLR regime. However, existing borrowers who have borrowed from SBI or even other borrowers, can always get their existing home loan shifted to the new regime, in case they are eligible to get their loan transferred, after taking into account the cost of prepayment and processing charges.
(The author is a taxation and home finance expert, with 30 years’ experience)