Home Loans, ICICI also proposes Cuts in the interests: Will this help at all????

Will the rates cut in home loan by ICICI Bank will help at all to atract new buyers? If we study the real estate scenario the market is stagnant and enquiries for the every types of projects have droppes by 50-60%, specifically for luxury segments. Another problem is in the present conditions where jobs are uncertain banks are at the back foot to release the loans and delaying the approvals of the files evenrates are still fairly stiff compared to other major players, especially if you look in the Rs 30 lakh and above category.

After State of Bank of India the country largest private sector bank has proposed cut in the home loan rates by 25-50 basis points (100 basis points = 1%) for new customers with immediate effect.
   But for old customers there is no relief, unfortunately, existing home loan borrowers from the bank will continue to pay a higher interest rate. ICICI Bank is the first private sector bank to reduce rates in the wake of the Reserve Bank of India’s decision to cut its benchmark policy rates—repo and reverse repo rates—by 50 bps on Wednesday as already State Bank of India and Canara Bank had reduced interest rates on home loans.
    Public sector Bank of Baroda also cut its benchmark lending rate by 50 bps to 12% with effect from April 1. The cut in the bank’s prime lending rate will reduce the interest burden in all its advances which are linked to its benchmark prime lending rate (BPLR, a rate offered by a bank to its best borrowers), including home loans from the bank. UCO Bank on Friday cut its BPLR by 50 bps to 12.50%.
    According to the new floating rate structure of ICICI Bank, the interest rates would be 9.75% against 10% earlier for home loans of less than Rs 20 lakh. For loans between Rs 20-30 lakh, the new rate would be at 10%, compared with 10.5% earlier, while for loans of Rs 30 lakh and above, the interest rates would be at 11.50% against 12% earlier.
    If we study the real estate scenario the market is stagnant and enquiries for the every types of projects have droppes by 50-60%, specifically for luxury segments. Another problem is in the present conditions where jobs are uncertain banks are at the back foot to release the loans and delaying the approvals of the files evenrates are still fairly stiff compared to other major players, especially if you look in the Rs 30 lakh and above category.
    To woe the customers earlier this week, Canara Bank announced that it would charge 8.25% interest for the first year for loans up to 20 years. Last month, SBI announced a home loan scheme where interest rate for the first year was fixed at 8% and the rate would change from the second year. The move invited criticism from other housing loan providers, which feared that the scheme was a deliberate attempt to wean away their existing customers.
    Many private sector banks are likely to take cue from ICICI Bank and announce rate cuts soon. However, the rates are likely to be applicable only to new customers, not for the existing customers, who have been burdened with higher rates of even 13-14%.

In the present market the exisiting customers of the private banks are getting diverted towards goverment banks. Even exisitng clients are opting for foreclosure by paying penality of say around 2-3% on the remaning amount.

    “There is a large chunk of people paying a higher interest rate and they have good credit record. Banks should have offered something to this category,’’ said Roongta. However, a private sector banker said it doesn’t look likely to happen in the near future. “If you look at SBI and Canara Bank, even they have announced the lower rates only for the new customers. Banks are unlikely to offer the benefit to existing customers as the move could result in an asset-liability mismatch,’’ said a private sector banker. An asset-liability mismatch can occur when a bank raises short-term finances —either through the usual deposit route or through loans—and lends those same funds for a longer period.