Miniscule rise in EMIs; NPAs in home loans below 2%
The latest hike in lending rates by SBI, ICICI Bank and Punjab National Bank (PNB) will have impact on real estate market, but in a modest way, observe experts from the industry.
Interest rate fluctuations are cyclical and marginal rise in realty market, which is in recovery mode after suffering from sluggish demand during the past couple of years, may not dampen the buyer sentiment, says C Shekhar Reddy, former President of Credai-National.
Speaking to The Hans India, Reddy said: “Leading banks hiked lending rates by 0.2 per cent. I expect that nominal impact will be there. It’s a reasonable rate hike. But, how long it’ll continue, we don’t know. RBI’s next policy will set the tone for future course of time. Small effect on home segment will be there. However, sales wouldn’t be affected. Because of very small rise. We have to wait and see for the long-run impact.”
The country’s top lenders including State Bank of India (SBI), ICICI Bank and PNB on Thursday announced an increase of 20 basis points in lending rates, a move that will make home loans a little more expensive. EMI of Rs1,245 a lakh per month on 10-year tenure. However, it may extend 10-year tenure per lakh by a month.
After adding 0.20 basis points, the EMI for the same loan product will be Rs1,256. it's a miniscule rise for buyers, hence there wouldn't be any major impact, said a GM (home loans) at a leading public-sector bank.
SBI floating interest rate 8.30-8.60 per cent involving EMI in the range of Rs855-874 a lakh per month. ICICI Bank rate hovering in the range of 8.35-8.80 giving an EMI of Rs858-996. HDFC Bank interest rate in the range of 8.35-8.55 per cent with an EMI of Rs858-871 every month. LIC Housing with an interest rate of 8.35-8.80 involving EMI of Rs858-886 every month. The hikes come amid tightening liquidity or cash supply in the banking system, accentuated by the year-end rush for funds that prompted SBI
The hikes come amid tightening liquidity or cash supply in the banking system, accentuated by the year-end rush for funds that prompted SBI, the country’s largest lender, to raise deposit rates by up to 75 basis points.
PNB said its home loans will cost 8.6% for most borrowers, while women will get it at 8.55%. SBI has a spread of 40 basis points over the MCLR for most borrowers and 35 basis points for women borrowers 100 basis points equal a percentage point). ICICI Bank has so far not announced a change in the spread.
On the other hand, even as government policies give huge thrust to affordable housing, latest data reveals elevated risks in the segment for lenders because of a higher propensity among the borrowers to default.
As against 1.96 per cent of overall home loans not repaid for over 90 days, the same for loans under Rs25 lakh, classified as affordable housing, was 2.33 per cent as of November 2017, a report by domestic rating agency Crif Highmark said.
In case of home loans under Rs 10 lakh, where the average ticket size is Rs 8 lakh, the 90-day overdue loan repayments stand at 4 per cent, twice that of the industry average, it added.
At Rs 7.79 lakh crore, affordable housing accounts for 50 per cent of the overall home loans of Rs 15.8 lakh crore.
As more banks take refuge in the sector considered more resilient in times of piling non-performing assets (NPAs), the banking system’s home loans outstanding has increased 13.6 per cent since April alone.
As the government seeks to meet its target of housing for all by 2022, a slew of sops has been given to the affordable housing sector, including inclusion in the mandatory priority sector lending by giving the sector an infrastructure status, introduction of tax benefits under section 80-IA of the Income-Tax Act, concessions on long-term capital gains tax provisions, etc.