Banks to withdraw attractive home loan schemes

India's largest public sector banks, State Bank of India (SBI) and Punjab National Bank (PNB) are planning to withdraw the special schemes on home loans that offer rates as low as eight percent for the initial years. With the Reserve Bank of India (RBI) sending out signals in its second-quarter review, these banks may have to raise their home loan rates by January to align them with the expected hike in key policy rates. The special schemes offered by public sector banks have resulted in the cost of home loans crashing to the lowest levels in five years, reports The Economic Times. While the special offers will be withdrawn from the end of the current calendar year, most banks are extending the festival offers such as zero processing fee till that time. Chairman and Managing Director of PNB, K.R. Kamath confirmed that the discounted rates on housing loans would be extended till December-end.
Currently, various banks are offering teaser rates for the first few years on home loans. Development Credit Bank is offering 7.95 percent rate for the first year on their home loans. SBI, Dena Bank and Canara Bank are currently offering eight percent rate for the first few years. After the offer period, such loans will be converted into floating rate loans.
Some public sector banks (PSBs) have already informed the Finance Ministry that with RBI looking at reversing the expansionary credit policy, they will not be in a position to continue with the offers on retail loans. The government is keen that the soft interest rate regime continues till the time there is more confidence in the economic recovery.
Private sector banks, which were forced to offer lower rates after the announcement of special schemes by their state-owned rivals, are likely to hike rates once the PSBs withdraw such schemes. Analysts expect HDFC Bank, the largest player in housing loan segment, to marginally increase its lending rates. The current floating rate offered by HDFC are 8.75 percent for loans up to Rs. 15 lakh, nine percent for loans between Rs. 15 lakh and Rs. 50 lakh and 9.5 percent for loans beyond Rs. 50 lakh.