The country’s largest lender State Bank of India on Friday decided to extend its 8 per cent home loan scheme till March 31, 2010, just a day before it was due to expire. The move is sure to further intensify the already heated competition in the home loan market.

In the past few days banks like Axis Bank and Bank of Rajasthan have launched special scheme for home loan borrowers. Axis Bank came out with a special 8 per cent scheme for the first year and Bank of Rajasthan too dropped home loan rates to 7.5 per cent w.e.f. from November 9 and Punjab National Bank extended its 8.5 per cent scheme till December 31.

The bank, which offers the special scheme under ‘My Home Campaign’, gives 8 per cent fixed interest rate for 5 years for loans up to Rs 5 lakh, with a maximum tenure of 10 years.

These are clear signs of banks renewing focus on the growing home loan market in the country.
With low credit off-take worrying the banking industry, the banks’ continued aggression in the retail space is not surprising especially in the absence of signs of strong demand from the corporates.

Credit off-take dropped to single digits recording 9.6 per cent growth as on October 23. In fact, both the disappointing credit growth numbers and SBI’s move has already got other players thinking of extending their schemes too.
“Such schemes should be continued as it is not a time to withdraw schemes,” said MV Nair, chairman and MD of Union Bank of India.

SBI’s aggression may also force bigger private sector players to relook at their strategy for the fear of losing market share. The customers however are all smiles as the party continues.

The new interest subsidy scheme is likely to cost the exchequer around Rs 1,000 crore, and the home loans will be disbursed through nationalised banks and the National Housing Bank.

The proposal moved by the Kumari Selja-led housing and urban poverty alleviation ministry, is slated to come up before the union cabinet on Wednesday. “The proposal for housing loans up to Rs 10 lakh is aimed at boosting the housing shortage in the country, especially the shortage in the middle income and lower income segments,” said a ministry official.

Last year, the government had announced interest subsidy of 5 per cent on loans up to Rs 1 lakh availed during the Eleventh Plan, for the urban poor. The loan repayment period varied between 15 and 20 years. The scheme, as per government estimates, would result in creation of additional housing stock of 3.10 lakh houses for economically weaker section (EWS) and low income group (LIG) households over the next four years.

“The proposal is a continuation of an older interest subsidy scheme, which has received a very positive response. However, in the proposed scheme, no income criteria for beneficiary have been set,” said the official.

The scheme is likely to benefit home loan seekers in smaller towns and cities where housing projects are available in the price ticket of up to Rs 20 lakh. However, a vast majority of metro residents may not be able to avail of the benefits of this scheme as affordable housing in metros like Delhi is pegged at anywhere between Rs 15-30 lakh.