|Sky is the limit
Calcutta, March 21: A new plan that will allow old home loans to be serviced at lower rates could blow a Rs 200-crore hole in State Bank of India’s (SBI) books next year.
Losses from the scheme, which will open on April 1, will be reflected in the balance-sheet for 2003-04. “We are also looking at other areas to absorb the loss. A clear picture will emerge when next year’s business plan is drawn up,” senior officials said.
The bank had announced a major relief for existing housing loan customers who have availed of loans at a floating rate of interest. The bank has decided to pass on the new low interest rate of 9 per cent for 10-year loans and 9.5 per cent beyond 10 years to all its existing home loan customers.
“The housing loans were taken at a rate as high as 11 per cent. So a reduction of 2 per cent is quite significant. However, the bank management thought that existing customers should also enjoy the benefits of a lower interest regime,” the officials said.
Officials said that the floating rates of interests are linked to the State Bank Medium Term Lending Rate (SBMTLR). Hence the recent reductions in rates of interest, which were not affected by movements of SBMTLR, could not be passed on to the existing customers; the current SBMTLR is pegged at 11.25 per cent.
The move to reduce the interest rate for existing customers has been prompted by the Reserve Bank’s decision to not allow SBI to come up with a separate prime lending rate for housing loans. The central bank has advised all banks to link its home loan interest rate to the bank’s prime lending rate.
The RBI has also asked banks to reset the rate every six months so that old customers pay in line with the market rate.
The bank had also come up with community-specific housing loans with lower rates of interest. The bank has worked out specific schemes for teachers, police and the judicial community. Loans in this category carry an interest of 8.75 per cent as against 9 per cent for loans of 10-year duration and 9.25 per cent for loans beyond 10 years.
“In these cases the margin is less and the processing fee is lower,” SBI officials said.
However, the response to community-specific loans is not encouraging. “The employers are not coming forward. Unless they show some interest it is difficult for the bank to sell such a product,” the officials said.
Housing finance comprises a major chunk of SBI’s personal loan portfolio. For the current fiscal, the bank had targeted disbursements of Rs 7,000 crore through its personal loans, of which home finance will contribute nearly Rs 4,500 crore.