Banks seem to be showing a clear preference for increasing their home loans within personal lending over the current holiday season, judging by the recent interest rate cuts they have made.
Most banks announced lower mortgage interest rates, which are now at an all-time low, but interest rates on other loans such as auto loans and unsecured personal loans have remained higher. or less unchanged.
Banks that have announced mortgage rate cuts during the current holiday season include Kotak Mahindra Bank (6.65% to 6.50%), State Bank of India (6.80% to 6.70%), Bank of Baroda (from 6.75% to 6.50%), Punjab National Bank (from 7.10% to 6.60% on mortgages above 50 lakh) and Union Bank of India (from 6.80% to 6.40%).
Depending on the credit rating of a potential borrower, banks would add a credit spread to the aforementioned rates.
This drop in mortgage rates comes even as industry experts believe there may be a dampening effect on demand for cars (and therefore loans to buy them) due to manufacturers passing on the increase in commodity prices on customers over the past few months. and rising fuel prices.
Read also: Healthy growth in mortgage loans, possibility of extending the festive offer: Kotak Mahindra Bank
Bankers are also wary of the possibility of a build-up of stress in the unsecured personal loan portfolio.
In addition, banks no longer enjoy the advantage they had over gold lending companies (GLC) last year (between August 6, 2020 and the end of March 2021), when the Reserve Bank of India ( RBI) authorized the first to offer loans of up to 90% of the value of ornaments and gold jewelry to mitigate the economic impact of the Covid-19 pandemic on households, entrepreneurs and small businesses .
Now, with the creation of a level playing field (banks and GLCs can offer loans up to 75% of the value of gold ornaments and jewelry), astute GLCs can attract customers they’ve lost. for the benefit of banks during the aforementioned period.
Low risks
Banks view home loans as the best bet to grow their retail loan portfolio due to the relatively low risk of default, lower risk weights (the minimum capital that must be set aside to mitigate the risk of default). was reduced to March 31, 2022) and the availability of strong collateral, according to banking expert V Viswanathan.
According to the Monetary Policy Report, with respect to new rupee loans tied to the policy rate of pensions, the deviation – Weighted Average Lending Rate (WALR) from the Repo Rate – charged by national banks in August 2021 was the lowest for housing loans and the highest for other personal loans, based on their risk profiles.
In the case of mortgage loans linked to an external benchmark, the deviation of the WALR from the repo rate in August 2021 was 3.19% for national banks. The aforementioned spread for auto loans and other personal loans was 3.60 percent and 4.98 percent, respectively.
The repo rate is the interest rate at which banks withdraw funds from the RBI to overcome short-term liquidity mismatches. Currently, this rate is 4%.