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State Bank may extend 8% home loan scheme till September
Posted on: 12-04-2009 , 04:: | DY365 Bureau

Under the scheme, valid from February onwards, interst rate was capped at 8% for one year.

The scheme had caused a flutter in the market, sparking competition in the banking and home finance space. Deepak Parekh, chairman of the country’s largest mortgage company HDFC, termed the reduction in interest rates a ‘gimmick’ . Subsequently, Canara bank  and LIC Housing Finance too reduced rates to draw customers . However, SBI’s concessionary offer remains the lowest to date.

“The proposal is to extend the home loan scheme up to September to benefit those who felt the April deadline was insufficient for availing of the scheme,” said officials privy to the development. “The proposal has been forwarded to the chairman’s office and approvals for the extension will be made public shortly. The deosit  level at the bank is robust and SBI can afford to offer the loans at lower interest for an extended duration,” they added.

Meanwhile, SBI on Saturday extended soft loans offered to its existing small and micro enterprise customers under SME Help (to purchase fixed assets, including generating sets) and SME Care (for working capital loans) schemes to September 2009.term lones  in the SME Help scheme will now be available for two years at 8% against one year when the scheme was launched earlier this year.


The bank has also slashed the interest rate to 8% for all new SME customers with loan requirements up to Rs 5 lakh. The reduced rates will be applicable for working capital as well as term loans provided they are covered under the credit guarantee scheme for small and micro enterprises (CGTMSE).
Further, for new SMEs with fund-based loan requirements above Rs 5 lakh but below Rs 25 lakh, the bank has offered fixed rate of interest of 10% for two years to units covered by CGTMSE.

Apart from home loans, the bank is likely to extend the deadline for auto loans and for warehouse-based receipts loans from May to September, according to the officials. These schemes, offering auto loans at 10% for one year and warehousebased receipt loans at 8%, were announced on February 20. Banking analysts say that lower-than-expected response from borrowers may have resulted in SBI extending its loan schemes


Demand for home loans is down because buyers are waiting for property prices to fall before they can avail of the reduced interest scheme. Further, Canara Bank's decision to offer a fixed rate of 8.25% on home loans up to December '09 may have also prompted SBI to extend its own scheme till September '09.

Of late, PSBs have found themselves under intense media glare for failing to reduce their benchmark prime lending rates (PLR) to the same extent that key policy rates have been systematically brought down to spur bank lending. However , PSBs point out that over three-fourth of their disbursals are at sub-PLR levels and that by reducing the PLR they will be forced to reduce interest rates further on loans that are linked to the prime rate such as on farm loans. This, they argue, could affect their profitability



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