MUMBAI: Bank of Baroda (BoB) has outdone market leader State Bank of India (SBI) in cutting rates on home loans, which it now offers at 8.35% as against SBI’s 8.6%. Historically, SBI has been the cheapest in the home loan business and its closest rivals offer loans around 5 basis points (bps) higher than the country’s largest bank (100 bps = 1 percentage point). This is the first time a nationalised bank has undercut SBI.
The move could trigger a rate war as banks are flush with funds, and loan growth since April has been almost negligible during the current financial year. Following the cut in rates by SBI to 8.6% for women and 8.65% for others, HDFC and ICICI banks cut rates to offer home loans 5 bps higher than that of SBI.
SBI might retaliate by bringing down rates further as it has kept some head room for further reduction. Last week, while announcing the rate cut, SBI chairman Arundhati Bhattacharya said that the bank had increased the spread on the home loan as part of a ‘business strategy’ and might again revise its rates depending on what the competition does. Although SBI had cut its one-year benchmark by 90 bps, it brought its home loan rate down by only 50 bps from 9.1% to 8.6% for women borrowers and 8.65% for others.
BoB is headed by P S Jayakumar, a former Citibanker, one of the two lateral recruits by the government. While the government has nudged banks to cut lending rates, the thrust on home loans is also driven by the bank’s search for a secure loan that will provide better returns than government securities. BoB has also cut rates on car loans to 8.85% and on loans against mortgages to 10.35%.
In a statement issued here on Monday, BoB said subsequent to reduction of benchmark lending rates, i.e. MCLR (marginal cost of lending rates) by 55 bps to 75 bps across all tenors with effect from January 7, 2017, BoB has reduced home loans by 70 bps to 8.35% — the lowest among all lenders. The revised rate of interest shall be applicable to all loans sanctioned with effect from January 7.
“On a home loan of Rs 50 lakh, reduction in interest rate by 0.70% by Bank of Baroda will help a homebuyer to save Rs 2,496 per month and approximately Rs 9 lakh during the loan tenure of 30 years,” the bank said in a statement. The bank is inviting existing borrowers of other lenders to get the benefit of lower rates.
Walls N Roof Comment : In a historic move, Bank of Baroda is offering the lowest home loan rates. SBI has been the market leader in providing home loan rates. Major institutions like State Bank of India, Bank of India, ICICI Bank, HDFC Bank etc. have reduced their lending rates. The reduction in home loan rates will not only benefit the affordable housing segment but the other housing segments as well.