Banks pare down retail lending rates on home, auto loans to spur growth

Leading public sector banks have pared down retail lending rates on home and auto loans in a move aimed at boosting demand and spur growth. Prodded by finance minister P. Chidambaram's call for easing interest rates, state-run banks are now charging 0.25 percentage points less on loans than their private counterparts.

Public sector lenders such as the State Bank of India (SBI), Syndicate Bank, Indian Overseas Bank (IOB), Union Bank of India (UBI), Punjab National Bank (PNB) and others have reduced interest rates on housing loans by 0.25 to one per cent.

Last month, the finance ministry had issued a directive to banks to cut interest rates as the Reserve Bank of India (RBI) had slashed the statutory liquidity ratio (SLR) by one per cent. This had released an additional Rs 55,000 crore into the banking system for providing loans.

The country's second-largest lender PNB trimmed interest rates on home and car loans by up to 0.5 per cent on Monday. In the housing loan segment, interest rates rate have been reduced by 0.25 per cent while it has been slashed by 0.5 per cent on car loans.

Corporation Bank, Central Bank of India and UBI have also scaled down interest rates on various retail loans. UBI has cut interest rates on seven-year auto loans to 10.95 per cent with effect from September 1 and also waived off processing fees. Earlier this month, UBI had announced a reduction in interest rates on home loans to 10.25 per cent and waived off the 0.5 per cent processing fees. The Central Bank of India too has cut rates by 0.25-0.5 per cent on various retail loans effective from September 1.

Syndicate Bank, Indian Overseas Bank and UBI are offering Rs 20-lakh floating rate home loans at 10.50 per cent for 15 years while private banks Axis Bank and Kotak Mahindra Bank are charging 10.75 per cent for Rs 25-lakh floating rate home loans with the same tenure.

"Since the festival season is in the offing, we have reduced the rates. We have compromised with the mark-up over our base rate. We will try to compensate through the volume increase," says Debabrata Sarkar, chairman and managing director, UBI.

However, there is also bad news for most pensioners and retirees who prefer to invest in fixed deposits (FDs) to generate a regular source of income as SBI on Wednesday cut FD rates by 0.5 per cent across tenures effective from September 7.

Some banks have said they were finding it tough to reduce rates on auto loans as they were close to the base rate. A further cut would impact their base rate and the overall portfolio resulting in an impact on their profits. FDs below Rs 15 lakh with maturity of one year to less than two years will be 8.5 per cent. Rates on FDs above Rs 15 lakh and less than Rs 1 crore too have been cut.

Courtesy: Mail Today