Mumbai, Feb. 20: The State Bank of India (SBI) is planning a realignment of interest rates on housing loans to bring old borrowers on a par with new clients.
The bank’s board is expected to discuss the proposal tomorrow.
The move has been prompted by an aggressive drive by private sector banks, which have been luring away old borrowers of housing finance companies and nationalised banks by offering attractive rates of interest on their outstanding loans.
According to P.N. Venkatachalam, managing director of SBI, the bank plans to bring the home loan rate for old borrowers on a par with the present rate of 9 per cent (for loans up to 10 years) and 9.5 per cent (above 10 years). The new rates are expected to come into effect in April, subject to the board’s approval.
Analysts said that if the SBI board clears the proposal, it could be a trendsetter. Such a move will force other players in the housing finance segment to follow suit.
Venkatachalam added that the bank has approached the RBI for permission for a separate prime lending rate (PLR) for home loans, which will be below the PLR for other loans.
Prime lending rate is a benchmark at which banks lend to their best clients.
A.K. Purwar, SBI chairman, conceded that the bank would take a hit due to this move. But he added that the bank would ensure that the impact on this count would be minimal. He was speaking after the launch of the Lifelong pensions by SBI Life Insurance Company.
Commenting on the bank’s international operations, particularly in the US, Purwar said the bank is putting in place a reporting system and full-fledged operations are expected to commence in a couple of months. The bank had fallen foul of the regulatory norms in the US last year.
“These things should not happen again as we are going ahead on the basis of recommendations made by an international consultant,” the SBI chairman added.