Mumbai, Aug. 7: The State Bank of India today fired a fresh salvo in the housing finance market by capping the interest rate at 8 per cent for five years on loans of up to Rs 5 lakh.

The bank said it would also provide loans up to Rs 50 lakh at 8 per cent for the first year and 8.5 per cent in the second and third years. The SBI has turned aggressive in the highly competitive home loan market, which has been dominated by HDFC.

HDFC now provides new home loans up to Rs 15 lakh at an interest rate of 8.75 per cent. For loans between Rs 15 lakh and Rs 30 lakh and that above Rs 30 lakh, it stands at 9 per cent and 9.50 per cent, respectively, for a 20-year tenure.

The SBI’s home loan offers are easily the cheapest in the market today.

Back in February, the SBI stunned the market by capping the interest rate on all home loans at 8 per cent in the first year. It improved the bait in June when it set a Rs 30-lakh cap for its Easy Home Loan Scheme, which fixed interest rates at 8 per cent in the first year and 9 per cent in the second and third years.

The SBI today said it was launching a three-month long “SBI My Home Campaign” from August 8 to facilitate home buyers during the forthcoming festival season. The bank said it would not charge any processing fees on the home loans.

Individuals can now borrow up to Rs 5 lakh under SBI Hi-Five Home Loan at an interest rate of 8 per cent fixed for a period of five years. Thereafter, the customer has an option to choose between a floating rate of 2.75 per cent below the State Bank Advance Rate (SBAR) and a fixed rate of 1.25 per cent below the SBAR for a further loan term of five years. The SBAR is the bank’s benchmark rate and stands at 12.25 per cent.

Borrowers of home loans of up to Rs 50 lakh will have the option at the end of three years to choose between a floating rate of 2.75 per cent below the SBAR and a fixed rate of 1.25 per cent below the SBAR. The tenure of these loans can stretch up to 25 years.

P. Nandkumaran, general manager, retail loans at the SBI, told The Telegraph that in the second scheme, the effective rate of interest for the entire tenure of the loan will be around 8.71 per cent.

“No bank now offers that kind of rate and if we were to minus the processing charges, the effective rate will come down further by another 10 basis points,” he said.

IDBI rate cut

IDBI Bank has slashed interest rates on deposits by 25-50 basis points across different maturities, effective August 12. The lender has also cut auto loan rates by one percentage point. The bank has not made any change in rates for deposits up to six months.

Nandkumaran said the bank had seen home loan sanctions jumping to Rs 2,100 crore a month from Rs 1,500 crore since it offered the 8 per cent interest rate scheme. “We expect a much better response from this scheme,” he said.

Analysts aver that while the market share of the SBI in the home loan segment has risen over the past six months, HDFC continues to be the leader. The SBI’s market share in the home loan market is now reported to be a little over 20 per cent. Although present figures for the country’s largest home financier HDFC is not known, the corporation had a market share of 40 per cent during the fiscal year ended March 31.