Friday, August 3, 2012

SBI to trigger a churn in home loans

Mumbai, August 2: With lenders continuing to offer special deals only to new home loan customers, the industry is set to see a churn in the portfolio as this is the only way a large number of existing borrowers will be able to take advantage of lower rates.

SBI’s move has changed the equilibrium that loan rates had settled down to after the April rate cut by the Reserve Bank of India.

While other lenders realize that SBI rates are the most competitive, they are still undecided about reducing their benchmark rates. SBI’s existing borrowers can take advantage of the new rates only after paying a conversion fee, which is 1% of the outstanding loan.

Officials in other banks say that rates for existing borrowers cannot be brought down without revising their benchmark Base Rate or Prime Lending Rates (for housing finance companies), which are pegged to the overall cost of funds. For banks, the benchmark rate determines not just the home loan rates...


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